Published on 22 Dec 2020.
RAM Ratings has reaffirmed the AAA/Stable/P1 financial institution ratings of MUFG Bank, Ltd (MUFG Bank or the Bank). The ratings consider MUFG Bank’s established domestic franchise, strong funding and liquidity profile, and the systemic importance of its parent – Mitsubishi UFJ Financial Group, Inc (MUFG or the Group). MUFG has been designated as a global systemically important bank by the Financial Stability Board.
With a gross impaired loan ratio of 1.2% as at end-September 2020, MUFG’s asset quality is still deemed solid. Economic challenges posed by the Covid-19 pandemic will raise the risk of credit deterioration going forward, particularly in respect of the Group’s commercial banking operations in Southeast Asia and corporate exposure to vulnerable economic segments such as aviation and energy & mining. That said, the decline in asset quality is expected to be manageable, given the extensive economic stimulus packages introduced in countries in which MUFG operates as well as the Group’s self-initiated relief measures.
Considering the potential spike in impairments, MUFG forecasts a full-year credit cost of JPY500 bil for FY Mar 2021 (FY Mar 2020: JPY222.9 bil), having incurred JPY258 bil in the first half of the fiscal year.
Such an elevated credit cost will further weaken the Group’s already-subdued profitability as a result of Japan’s extremely accommodative monetary policy. Its net interest margins have stayed below 1% for the past few fiscal years. In 1H FY Mar 2021, MUFG bagged lower pre-tax profits of JPY573 bil, down by 27% from same period last year as economic detriments of Covid-19 kicked in.
Funding and liquidity, however, are key strengths of the Group. MUFG has a sturdy base of retail deposits in Japan, with individual deposits constituting about 41% of total deposits as at end-September 2020. A sizeable pool of liquid assets enables it to comfortably meet the required liquidity coverage ratio. MUFG’s common equity tier-1 capital ratio of 12.5% as at end-June 2020 remained adequate. The Group’s sizeable equity cross-shareholdings, while having dwindled over the years, renders its capitalisation susceptible to stock price fluctuations. Excluding the investment gains, the ratio would be a lower 9.8%.
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Published by RAM Rating Services Berhad
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Ratings on MUFG Bank, Ltd