Fitch Ratings has affirmed
The Outlook on the IDRs is Stable.
At the same time, Fitch is withdrawing Shizuoka's Support Rating and Support Rating Floor as they are no longer relevant to the agency's coverage following the publication of our updated Bank Rating Criteria on
Key Rating Drivers
IDRS AND VIABILITY RATING
The IDRs of Shizuoka are driven by its VR, which reflects its intrinsic credit profile. The bank's VR is at the same level as the implied VR and is influenced by Fitch's assessment on the operating environment (OE) for Japanese banks at 'a-'. We revised the OE factor outlook to stable from negative, as we have done for the major Japanese banks, driven by our belief that the downside risks are being alleviated by the gradual recovery of the economy. The OE factor midpoint at 'a-' is below the implied 'aa' category score for
The rationale for the revision of the outlook on the OE score is similar to the reason for the change to a stable outlook on the asset quality and capitalisation and leverage scores.
The bank has maintained sound asset quality, with non-performing loans/total loans at 1.1% at
Fitch expects Shizuoka's capitalisation to remain strong with a common equity Tier 1 (CET1) ratio of 16.6% at
Structural issues facing the Japanese banking industry remain, and Fitch expects Shizuoka to continue to face challenges in attaining higher profitability. We have lowered our assessment on the earnings and profitability score to 'bbb-/stable' from 'bbb/negative' and the bank's low profitability will remain a key weakness of its intrinsic credit profile. This is partly due to its narrower business focus on lending and less geographic diversification in its operations compared with the major domestic banks. Nonetheless, the bank is working on cost reduction and expanding fee-generating business, which is starting to contribute to profitability.
The VR also considers the bank's strong market position in the Shizuoka prefecture with the largest market share in loans (over 35%). This underpins our Business Profile score of 'a-', which is above the implied 'bbb' category score. The bank has a longstanding leading franchise in the prefecture and strong relationships with clients in the region.
In accordance with Fitch criteria, the bank's Short-Term IDR of 'F1' is at the higher of the two options available at a Long-Term IDR of 'A-', supported by the funding and liquidity score of 'a'.
GOVERNMENT SUPPORT RATING
Shizuoka's 'bbb-' GSR reflects our view of a high probability of support from the Japanese sovereign, if necessary, due to the bank's large market presence in the Shizuoka prefecture. However, the bank lacks the systemic importance of its mega bank peers despite its strong franchise and share of deposits and loans in the prefecture.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
IDRS AND VIABILITY RATING
The VR could come under pressure from a combination of a sustained deterioration in the operating profit/risk-weighted assets ratio to below 0.75% (six months ending
Involvement in industry consolidation, leading to potentially higher volatility in earnings or capital, or deterioration of asset quality, could also lead to negative rating action.
GOVERNMENT SUPPORT RATING
Fitch may take negative action on the bank's GSR if we believe the government's propensity to support the bank is lowered or the ability to support the bank has deteriorated significantly.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
IDRS AND VIABILITY RATING
Potential upside for the ratings is limited. Substantial improvement in the operating environment and positive rating action on
GOVERNMENT SUPPORT RATING
Shizuoka's GSR could be upgraded if Fitch believes there is a higher propensity for the sovereign to provide support to the bank. This may happen if the bank's systemic importance increases, reflected in a meaningful national market share. However, we consider such prospects to be low over the medium term due to the bank's regional focus.
VR ADJUSTMENTS
The OE score of 'a-' has been assigned below the 'aa' category implied score due to the following adjustment reason: Sovereign Rating (negative) and Economic Performance (negative).
The Business Profile score of 'a-' has been assigned above the 'bbb' category implied score due to the following adjustment reason: Market Position (positive).
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Summary of Financial Adjustments
Total assets and total liabilities exclude acceptances and guarantees from
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
(C) 2021 Electronic News Publishing, source