MIZUHO FINANCIAL GROUP, INC.
Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of
The Outlook on Long-Term IDRs is Stable. At the same time, Fitch has affirmed the Viability Ratings for Mizuho at 'a-'.
The agency affirmed the ratings on MHFG's debt issuance programme and senior unsecured notes issued under the programme at 'A-'. The medium-term note programme for
At the same time, Fitch has withdrawn Mizuho's Support Rating of '1' and Support Rating Floor of 'A-' because they are no longer relevant to the agency's coverage following the publication of our updated Bank Rating Criteria on
Key Rating Drivers
IDRS, VRS, SENIOR DEBT, AND GSRS
IDRs at Same Level as VRs: Mizuho's Long-Term IDRs are at the same level as its group VR and GSR. The GSR reflects Fitch's view of a very high likelihood of support from the Japanese sovereign (A/Stable) for Mizuho, should it be required. Our affirmation of the VRs, which are in line with its implied group VR, factors in Mizuho's strong domestic franchise, which underpins a sound funding base, stable asset quality and capitalisation, and modest profitability.
The Short-Term IDR of 'F1', which is at the higher of the two options mapped to the Long-Term IDR of 'A-', reflects Fitch's expectation of government support, which is more certain in the short term. The ratings on the senior unsecured note programme and notes issued under the programme are aligned with MHFG's Long-Term IDR, in line with Fitch's criteria.
Consolidated Group VR: We assess Mizuho's VR on a consolidated group basis reflecting the functional interconnectedness between the group and core banks (MHBK and MHTB) and the regulator's group-level focus, which makes government support equally likely for MHFG, MHBK and MHTB. We assign the group VR to MHBK and MHTB as we believe they have substantially the same failure risk as the group. The group VR is also assigned to the holding company reflecting low double leverage and prudent liquidity management.
Stable Operating Environment: We expect a slow but sound economic recovery in
Sound Domestic Franchise: Mizuho has a strong franchise and a diverse product capability through collaboration among its banking, securities and trust banking arms. We expect Mizuho's offshore and inorganic growth to be accompanied by a commensurate increase in loss-absorption buffers.
Non-Financial Risk Addressed: We view that Mizuho has robust financial risk management and controls in place, while its non-financial risk, which increased in 2021 is being addressed through an improvement plan. Fitch expects Mizuho's growth strategy to remain disciplined and aligned with its capital policy.
Stabilising Profitability: MHFG's profitability remains a weakness of its standalone credit profile, but we expect its operating profit/risk-weighted asset (RWA) ratio, our core metric on profitability, to remain at around 1.0% for the financial year ended
Slower Capital Accumulation: We expect MHFG's common equity Tier 1 (CET1) ratio to remain at around 12% to FYE23 (based on the current regulatory framework). However, the shift in the bank's capital policy to allow investments for growth and enhanced shareholder returns, could reduce rating headroom, as reflected in the negative outlook on the 'bbb+' capitalisation and leverage factor score. We believe MHFG will seek to balance capital accumulation, investment and shareholder return to maintain its medium-term CET1 ratio target level at the lower end of the 9%-10% range on a Basel III finalisation basis, excluding unrealised gains on securities.
Asset Quality to Stabilise: We expect MHFG's asset quality to stabilise, with non-performing loan/total loan ratio at around 1.3%, providing sufficient buffer and supporting a stable outlook on the asset quality factor score of 'a'. The ratio was 1.3% at
Sound Funding Position: Mizuho's sound funding profile from a strong yen deposit base is a credit strength. The group's foreign-currency funding base is stable, helped by deposits and mid- to long-term bond issues and cross-currency swaps.
'Very High' Likelihood of Support: Mizuho's GSR reflects our assessment that, like other systemically important banks in
The government can pre-emptively provide financial assistance to a solvent bank holding company when a serious system disruption is anticipated under
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
IDRS, VRS AND SENIOR DEBT
Negative rating action on the GSRs combined with a downgrade on the VRs would lead to negative rating action on the Long-Term IDRs and long-term senior debt rating.
Mizuho's VRs are most sensitive to challenges in the operating environment, such as negative GDP growth with a substantial delay in recovery to pre-pandemic GDP levels, could lead us to revise the operating environment factor score to 'bbb+'. This would be likely to lead to a downgrade of the group VR. However, this is not our base case as reflected in our stable operating environment factor outlook.
In the absence of a downward revision to the operating environment score, Mizuho's implied VRs are resilient unless there is a material weakening in a combination of several financial and non-financial key rating drivers. Developments that could lead to negative rating action include a combination of the following:
a sharp deterioration in profitability or limited prospects for sustainable improvement in profitability, with the operating profit/RWA at consistently below 0.9%;
substantially weaker asset quality, such as the non-performing loan ratio staying above 1.5% for a prolonged period or an unexpected and large impairment in the securities portfolio;
a deterioration in capitalisation, as reflected in the CET1 ratio (based on current Basel III standards; based on Fitch's current rating framework) at consistently below 12% (
A downward revision of Mizuho's business profile, such as a shift to a less-stable business model and an increase in risk appetite, together with downgrades of financial key rating factors could also lead to a downgrade of the VRs.
The Short-Term IDRs will remain at 'F1' unless the Long-Term IDRs are downgraded to 'BBB' or our funding and liquidity factor score is lowered to 'bbb+' or below.
GSRS
Any weakening of our assumptions about the sovereign's propensity or ability to provide timely support to the group could lead to negative rating action on the GSRs. A downgrade of the sovereign rating to 'A-', on its own, is unlikely to lead to a downgrade of GSRs. In any case, a downgrade of
Factors that could, individually or collectively, lead to positive rating action/upgrade:
IDRS, VRS AND SENIOR DEBT
An upgrade of the sovereign ratings could lead to an upgrade of the GSRs and the Long-Term IDRs and long-term senior debt rating.
Any upgrade of the group VR would lead to positive rating action on the Long-Term IDRs and long-term senior debt rating, although that appears unlikely. It would require a sustainable improvement in profitability, with the operating profit/RWA ratio remaining consistently above 1.4%; increasing steady fee and commission income; and enhanced capitalisation with the CET1 ratio sustained above 14% under the current framework.
The Short-Term IDRs could be upgraded if the Long-Term IDRs are upgraded to 'A' and our funding and liquidity factor score is raised to 'aa-', which appears unlikely in the near term.
GSRS
An upgrade of the sovereign rating could lead to positive rating action on the GSRs.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
SUBORDINATED DEBT
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The Tier 2 debt ratings would be downgraded if MHFG's Long-Term IDR is downgraded.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of MHFG's Long-Term IDR would result in an upgrade of the Tier 2 debt ratings.
VR ADJUSTMENTS
The Operating Environment score of 'a-' has been assigned below the 'aa' implied score due to the following reason: economic performance.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Summary of Financial Adjustments
Total assets and total liabilities exclude acceptances and guarantees from
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
The ratings on MMC's medium-term note programme are directly linked to the IDR of the guarantor,
The rating on the notes issued by
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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