The trend on all ratings is Stable. The Intrinsic Assessment (IA) of the Bank is based upon the financial strength of the consolidated
KEY RATING CONSIDERATIONS
In maintaining
The IA incorporates the Group's solid credit risk profile and sound asset quality to date along with its strong funding and liquidity position, supported by its solid domestic customer deposit base, and its strong capital position. Nevertheless, similar to its domestic peers, the Group has sizeable holdings of Japanese Government Bonds and Japanese equities, which albeit reducing over the years, continue to expose the Group to volatility in its regulatory capital ratios. The IA also takes into account that higher credit costs driven by the COVID-19 environment will add further pressure to the Group's profitability, which is already impacted by the negative interest environment in
RATING DRIVERS
Given the scale of the economic disruption caused by the COVID-19 outbreak, an upgrade of the Long-term Issuer rating is unlikely. An upgrade of the Bank's Long-Term ratings would require that: 1) the sovereign rating is upgraded and uplift for systemic support is consequently incorporated into the ratings in line with the SA2 Support Assessment; or 2) the Group's overseas activities increase sufficiently that the proportion and quality of profits and exposures outside of
A downgrade of the sovereign rating would likely lead to a downgrade of the ratings. Absent any change to the sovereign rating or to the Support Assessment, a downgrade of the Long-Term Issuer Rating would require a two-notch downgrade of the IA. This could occur from a substantial deterioration in the Group's asset quality and a significant weakening in its capital position, potentially as a result of a prolonged adverse economic impact from COVID-19.
RATING RATIONALE
MUFG has demonstrated resilient earnings in recent years, as the solid performance of its overseas businesses offset the ongoing pressure in its domestic operations, partly arising from the very low interest rate environment in
MUFG has a solid credit risk profile and strong asset quality, which has remained stable in spite of various acquisitions in recent years, partly supported by the benign economic environment in its main markets. Non-performing loans (NPLs), based on the Financial Reconstruction Law (FRL) and when calculated on a combined MUBK and MUTB basis (including Trust Account), accounted for 0.65% of total gross loans at end-2019. The Group has exposure to sectors which could potentially be negatively affected if the COVID-19 outbreak were to be prolonged, including exposure to aircraft business (
MUFG has a strong funding and liquidity profile, largely underpinned by its solid domestic customer deposit base. The Group's net loan-to-deposit ratio was a sound 58 % at end-FY2019. However, DBRS Morningstar notes that the Group's overseas operations make strong use of market funding albeit this has been gradually reduced, supported by strong growth in overseas deposits. Wholesale funding (including medium to long-term funding in the form of corporate bonds, and currency swaps) represented 39% of total Non-JPY funding at end-FY2019 , while the Group also makes use of short-term funding to fund its overseas operations exposing the Group to potentially higher funding costs, or a change in investor confidence. The Group's liquidity position is strong. The Liquidity Coverage ratio (LCR) was 155% and the Group had Highly Liquid assets (HQLA) representing a high 31% of total assets at end-FY19.
MUFG has a solid capital position even though regulatory capital ratios were negatively impacted by lower retained earnings in FY2019 and an increase in dividend payments. Similar to domestic peers, regulatory capital ratios also include significant unrealised gains on Japanese equity holdings. The Group reported a Common Equity Tier 1 (CET1) ratio, including net unrealised gains/losses on available-for-sale-securities, of 11.9% at end-FY2019, down from 12.6% at end- H1 2019 as a result of significant market volatility in Q4 2019. Excluding net unrealised gains/losses on available-for-sale securities, MUFG's CET1 ratio was 9.8% at end-FY2019, albeit still well above the minimum regulatory requirement of 8.5%, which include the G-SIB surcharge of 1.5%. The Group's transitional Basel III leverage ratio was 4.4% at end-FY2019.
ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
The Grid Summary Grades for
Notes:
All figures are in JPY unless otherwise noted.
The principal methodology is the Global Methodology for
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883
The sources of information used for this rating include MUFG's FY2019 Results Presentation and
DBRS Morningstar does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.
Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar's outlooks and ratings are under regular surveillance.
For further information on DBRS Morningstar historical default rates published by the
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/363015
Ratings assigned by
Lead Analyst:
Rating Committee Chair:
Initial Rating Date:
Last Rating Date:
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Ratings
Date Issued Debt Rated Action Rating Trend Issued
i
US =
CA = Canada Issued, NRSRO
EU = EU Issued, NRSRO
E = EU endorsed
Unsolicited Participating With Access
Unsolicited Participating Without Access
Unsolicited Non-Participating
24-Jun-20 Long-Term Issuer Rating Confirmed A (high) Stb EU
24-Jun-20 Short-Term Issuer Rating Confirmed R-1 (middle) Stb EU
24-Jun-20 Long-Term Senior Debt Confirmed A (high) Stb EU
24-Jun-20 Short-Term Instruments Confirmed R-1 (middle) Stb EU
24-Jun-20 Long-Term Deposits Confirmed A (high) Stb EU
Date Issued Debt Rated Action Rating Trend Issued
i
US =
CA = Canada Issued, NRSRO
EU = EU Issued, NRSRO
E = EU endorsed
Unsolicited Participating With Access
Unsolicited Participating Without Access
Unsolicited Non-Participating
24-Jun-20 Long-Term Senior Debt Confirmed A (high) Stb EU
24-Jun-20 Short-Term Instruments Confirmed R-1 (middle) Stb EU
24-Jun-20 Long-Term Deposits Confirmed A (high) Stb EU
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