Fitch Affirms Japan's Shizuoka Bank at 'A'; Outlook Stable
20/12/2019 05:26
(The following statement was released by the rating agency) Fitch Ratings-Tokyo-December 20: Fitch Ratings has affirmed The Shizuoka Bank, Ltd.'s Long-Term Issuer Default Rating (IDR) at 'A' with a Stable Outlook. The Shizuoka Bank, Ltd.; Long Term Issuer Default Rating; Affirmed; A; RO:Sta ; Short Term Issuer Default Rating; Affirmed; F1 ; Local Currency Long Term Issuer Default Rating; Affirmed; A; RO:Sta ; Local Currency Short Term Issuer Default Rating; Affirmed; F1 ; Viability Rating; Affirmed; a ; Support Rating; Affirmed; 2 ; Support Rating Floor; Affirmed; BBB- Key Rating Drivers IDRS AND VIABILITY RATING The IDRs of Shizuoka are driven by its Viability Rating of 'a'. The Viability Rating is supported by the bank'sstrong capitalisation, with a Fitch Core Capital ratio of 17.3% and common equity Tier 1 ratio of 16.1% at end- September 2019, higher than those of Japan's'mega banks'. Fitch expects capitalisation to be sustained over the medium term, although pressured profitability could constrain further capital growth. The ratings also factor in the bank's robust risk controls, which have contributed to sound asset quality, although collateral / guarantee coverage continues to decline. The bank's strategy to improve profitability, which involves loan growth and increasing fee income from customers, could have a negative effect on its credit profile should it result from a substantial increase in risk appetite and lead to a decrease in risk buffers. Shizuoka's profitability is pressured, like that of most Japanese peers, amid prolonged low interest rates, the country's ageing and shrinking population, changing customer needs, and intense competition. The bank's leading franchise in Shizuoka prefecture underpins its stable deposit base, mainly from individuals. Thisalso support its funding base and lowers the bank's reliance on wholesale funding. SUPPORT RATING AND SUPPORT RATING FLOOR Shizuoka's Support Rating of '2' and Support Rating Floor of 'BBB-' reflect our view that there is a high probability of support fromthe sovereign, if necessary, due to the bank's large market presence, which is backed by its strong franchise as well as its share of deposits and loans in the prefecture. The bank accounts for 31% and 26% of theprefecture's loans and deposits, respectively. RATING SENSITIVITIES IDRS AND VIABILITY RATING Shizuoka's Viability Rating could be downgraded should capitalisation deteriorate to be more in line with the Japanese mega banks or Fitch considers it to no longer be commensurate with risk. This may occur as the result of increased risk-taking in pursuit of higher returns, possibly through accelerating loan growth by increasing lending to borrowers with weaker credit profile or exposure to riskier securities investments, without a corresponding increase in loss-absorption buffers. Continued profitability pressure may also be detrimental to capitalisation. Involvement in industry consolidation, leading to potentially higher volatility in earnings or capital, could also lead to negative rating action. Shizuoka's IDRs and Viability Ratingcould also be adversely affected if the sovereign's rating isrevised downward as Fitch would not rate Shizuoka above Japan (A/Stable). There is no upside to Shizuoka's Viability Rating. SUPPORT RATING AND SUPPORT RATING FLOOR Shizuoka's Support Rating and Support Rating Floor are sensitive to a change in Fitch's assessment of the sovereign's ability and willingness to support the bank. Summary of Financial Adjustments Total assets and total liabilities exclude acceptances and guarantees from Japan's generally accepted accounting principles balance sheet to be globally comparable. ESG Considerations Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of 3 - 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. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg Contacts: Primary Rating Analyst Yuka Negami, Director +81 3 3288 2686 Fitch Ratings Japan Limited Kojimachi Crystal City East Wing 3rd Floor 4-8 Kojimachi, Chiyoda-ku Tokyo 102-0083 Secondary Rating Analyst Kaori Nishizawa, Director +81 3 3288 2783 Committee Chairperson Tim Roche, Senior Director +61 2 8256 0310 Media Relations: Alanis Ko, Hong Kong, Tel: +852 2263 9953, Email: alanis.ko@thefitchgroup.com; Wai Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@thefitchgroup.com. Additional information is available on www.fitchratings.com Applicable Criteria Bank Rating Criteria (pub. 12 Oct 2018) https://www.fitchratings.com/site/re/10044408 Short-Term Ratings Criteria (pub. 02 May 2019) https://www.fitchratings.com/site/re/10073011 Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/site/dodd-frank-disclosure/10105484 Solicitation Status https://www.fitchratings.com/site/pr/10105484#solicitation Endorsement Policy https://www.fitchratings.com/regulatory ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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