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.
Chan Yin Huei
(603) 3385 2498
Lee Jo Yee
(603) 3385 2583
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Published by RAM Rating Services Berhad
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Ratings on MUFG Bank, Ltd