Moody's affirms Norinchukin Bank's A1 ratings; outlook stable

Moody's affirms Norinchukin Bank's A1 ratings; outlook stable

Tokyo, August 02, 2022 — Moody’s Japan K.K. has affirmed all ratings assigned to The Norinchukin Bank (Norinchukin) and Norinchukin Australia Pty Limited. The outlook on the ratings is stable.

The affirmed ratings and assessments are as follows:

The Norinchukin Bank:

– Baseline Credit Assessment (BCA): affirmed at a3

– Adjusted BCA: affirmed at a3

– Long-term bank deposit ratings (domestic and foreign currency): affirmed at A1, outlook stable

– Short-term bank deposit ratings (domestic and foreign currency): affirmed at P-1

– Long-term issuer rating: affirmed at A1, outlook stable

– Senior unsecured debt ratings (domestic and foreign currency): affirmed at A1, outlook stable

– Long-term Counterparty Risk ratings (domestic and foreign currency): affirmed at A1

– Short-term Counterparty Risk ratings (domestic and foreign currency): affirmed at P-1

– Long-term Counterparty Risk assessment: affirmed at A1(cr)

– Short-term Counterparty Risk assessment: affirmed at P-1(cr)

– Outlook remains stable

Norinchukin Australia Pty Limited:

– Long-term issuer ratings (domestic and foreign currency): affirmed at A1, outlook stable

– Outlook remains stable

RATINGS RATIONALE

The rating affirmation reflects Norinchukin’s very strong capital and strong liquidity, offset by its low profitability and the risks associated with the bank’s business model, which involves the management of a large portfolio of investment securities. These same factors are behind the affirmation of Norinchukin’s a3 BCA.

Norinchukin’s unrealized gains in its market investment portfolio significantly decreased by more than 60% to JPY1.0 trillion as of the end of March 2022 from JPY2.7 trillion as of the end of March 2021. This is because of a substantial fall in unrealized gains and losses on its bond holdings to JPY334 billion of losses from JPY960 billion of gains respectively, due mainly to rising USD interest rates in the first quarter of 2022.

However, Norinchukin’s proactive reduction of interest rate and credit risk exposures will help prevent further increases in unrealized losses in the bank’s market investment portfolio. The weaker yen will also help to offset the negative effects of rising USD interest rates.

Norinchukin’s weak profitability reflects low interest rates globally and the fact that the bank does not take much credit risk. In addition, Norinchukin’s proactive reduction of interest rate and credit risk exposures will reduce the bank’s interest income in the fiscal year ended March 2023 (fiscal 2022).

Norinchukin’s A1 long-term deposit and senior unsecured debt ratings incorporate a two-notch uplift from the bank’s a3 Adjusted BCA. The Adjusted BCA and BCA are the same because there is no affiliate support. The two-notch uplift reflects Moody’s assumption of a very high likelihood of support for the bank from the Government of Japan (A1 stable) in times of stress, given the bank’s importance as the central financial organization for Japan’s agricultural, forestry and fishery cooperatives, and the prefectural banking federations of the three segments (collectively referred to as the member cooperatives).

The stable outlook on Norinchukin’s ratings reflects Moody’s expectation that the bank’s very strong capital and strong liquidity will remain unchanged over the next 12-18 months, mitigating the risks inherent in its investment securities portfolio.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

An upgrade is unlikely because Norinchukin’s long-term deposits and senior debt are rated at the same level as Japan’s sovereign rating.

Factors that could move the rating downward include: (1) a change in Norinchukin’s investment strategy that results in higher credit or market risk; (2) Norinchukin’s tangible common equity (TCE)/risk-weighted assets (RWA) remaining below 14% over an extended period; (3) Norinchukin’s nominal leverage ratio falling below 5%; (4) a failure of the member cooperatives, resulting in depositor losses or the need for extraordinary financial assistance from Norinchukin; or (5) signs of a decrease in Norinchukin’s importance as the central institution for Japan’s agricultural, forestry and fishery cooperatives.

The principal methodology used in these ratings was Banks Methodology (Japanese) published in July 2021 and available at https://ratings.moodys.com/api/rmc-documents/73737. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Headquartered in Tokyo, The Norinchukin Bank (Norinchukin) is a national-level cooperative financial institution, with member organizations related to agriculture, forestry and fisheries. The bank had total consolidated assets of JPY106 trillion as of the end of March 2022.

REGULATORY DISCLOSURES

For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.

Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Tetsuya Yamamoto
VP – Senior Credit Officer
Financial Institutions Group
Moody’s Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo, 105-6220
Japan
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100

Graeme Knowd
MD – Banking
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody’s Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo, 105-6220
Japan
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100

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