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.
Chan Yin Huei
(603) 3385 2498
Lee Jo Yee
(603) 3385 2583
(603) 3385 2500
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Published by RAM Rating Services Berhad
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Ratings on MUFG Bank, Ltd