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RAM Ratings reaffirms MUFG Bank, Ltd’s AAA/Stable/P1 ratings
Published on 21 Oct 2022.
RAM Ratings has reaffirmed MUFG Bank, Ltd’s (MUFG Bank or the Bank) AAA/Stable/P1 financial institution ratings.
The reaffirmation is premised on the Bank’s strategic importance as the core commercial bank of Mitsubishi UFJ Financial Group, Inc (MUFG or the Group). Given the strong credit linkage between MUFG Bank and the Group, RAM’s analytical viewpoints are underscored by the credit metrics of the Group.
MUFG is a systemically important bank, both globally and in Japan. We believe the Group and the Bank will benefit from high levels of government support in times of stress. The Group has an established franchise in Japan which reinforces its strong funding and liquidity profile.
Despite steep US interest rate hikes, the Bank of Japan has reaffirmed its commitment to keep domestic rates at current low levels. This will support the Group’s asset quality which will be anchored by the resilience of its domestic loan book. Credit risks stemming from MUFG’s overseas exposures have remained manageable. The loan loss coverage of its Thai and Indonesian subsidiaries, which have large retail and commercial exposures, is sufficient to absorb emerging risks. The Group’s overall credit cost ratio has come off the pandemic peak and should improve to around 0.2%-0.3% over the next one to two years. MUFG’s gross impaired loan ratio stood at 1.2% as at end-June 2022.
Pre-tax profit for FY Mar 2022 advanced 43% to JPY1.49 tril on a significant reduction in credit costs and a greater share of profit from equity method affiliated company, Morgan Stanley. The solid performance was spurred by increased net interest income, strong fees and commissions from higher sales of investment products, and larger net gains on the sale of equities which offset losses from foreign bond sales. The Group’s 1Q FY Mar 2023 results were impacted by valuation losses on assets classified as held for sale at MUFG Union Bank. Originally expected to be concluded in 1H CY 2022, the sale is now scheduled for completion in 2H CY 2022 due to delays in obtaining regulatory approvals.
Capitalisation is adequate relative to MUFG’s risk profile but capital growth will be weighed down by a pick-up in overseas loans growth, weak profitability and dividend pressures. The Group’s modest profitability is a key rating constraint.
Analytical contacts
Chan Yin Huei
(603) 3385 2498
yinhuei@ram.com.my
Lee Jo Yee
(603) 3385 2583
joyee@ram.com.my
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
Published by RAM Rating Services Berhad
© Copyright 2022 by RAM Rating Services Berhad
