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RAM Ratings affirms MUFG Bank, Ltd’s AAA rating
Published on 21 Nov 2023.
RAM Ratings has affirmed MUFG Bank, Ltd’s (MUFG Bank or the Bank) AAA/Stable/P1 financial institution ratings. The ratings are 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 generous government support in times of stress. MUFG’s established franchise in Japan reinforces its strong funding and liquidity profile.
The Group exited the retail and commercial banking business in the US upon the completion of the sale of MUFG Union Bank (MUB) to U.S. Bancorp in December 2022. MUFG is focusing its growth on Southeast Asia, which it has labelled as its ‘second home market’. The Group has indicated that it will continue to make opportunistic acquisitions in Southeast Asia to strengthen its regional network. Owing to the region’s riskier operating environment compared to Japan’s, such expansions may expose MUFG to a higher risk level. We however expect the Group’s overall asset quality to remain solid, anchored by the resilience of its domestic loan book and prudent risk management.
Adjusting for non-recurring items related to the sale of MUB, MUFG’s credit cost ratio in FY Mar 2023 stayed within the 0.2%-0.3% range guided by management, where we expect it to trend in the near future. The Group’s gross impaired loan ratio was 1.4% as at end-June 2023.
MUFG delivered a solid topline performance in FY Mar 2023, spurred by a major surge in net interest income amid rising interest rates as well as sustained improvement in lending spreads for overseas loans. This was complemented by higher fees and commissions and lower ‘business-as-usual’ impairment charges. However, pre-tax profit advanced just 5% y-o-y to JPY1.57 tril as the Group recorded valuation losses associated with the disposal of MUB.
Capitalisation is adequate relative to MUFG’s risk profile but capital growth will be weighed down by modest, albeit improved, profitability and dividend pressures. The Group’s low 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
Media contact
Sakinah Ariffin
(603) 3385 2500
sakinah@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 2023 by RAM Rating Services Berhad
