RAM Ratings has reaffirmed the AAA/Stable/P1 financial institution ratings of MUFG Bank, Ltd (formerly known as The Bank of Tokyo-Mitsubishi UFJ, Ltd) (MUFG Bank or the Bank). The ratings consider MUFG Bank's established domestic franchise, strong funding and liquidity profile, solid loan quality and the systemic importance of its Japan-based holding company, Mitsubishi UFJ Financial Group, Inc (MUFG or the Group). It has also been identified as a global systemically important bank by the Financial Stability Board.
The Group's recent acquisition of Indonesia-based Bank Danamon underscores its continued pursuit of a more lucrative retail and commercial banking strategy in this region. While this strategy could introduce some asset quality challenges especially during economic downturns, it is unlikely to dent its credit metrics in any significant manner. The Group's prudent risk management and the stability of its core market in Japan will continue to underpin overall credit performance. The Group's gross impaired loan (GIL) ratio stood at a low 0.9% as at end-September 2018 (end-March 2018: 1.2%). The Group continued to enjoy write-back of impairment charges (from improved internal ratings of borrowers) in 1H FY Mar 2019.
Funding and liquidity is a key strength of Japanese mega banks such as MUFG. The Group has a strong base of retail deposits in Japan; individual deposits constituted about 43% of its total deposits as at end-September 2018. With a loans-to-deposits ratio of 71% and substantial holdings of Japanese government bonds, the Group's liquidity coverage ratio easily exceeded 100%. On the flip side, MUFG's sizeable equity cross-shareholdings and investments in Japanese bonds render its earnings and capitalisation more volatile. As at end-September 2018, the Group's fully loaded common-equity tier-1 (CET-1) ratio, which accounts for unrealised gains on securities, came up to 11.9%. Excluding these gains, its CET-1 capital ratio would ease to 9.7%.prospects for Japanese banks remain dim. Fierce competition and ultra-low lending rates will keep suppressing MUFG's net interest margin; we envisage little improvement in the foreseeable future given the Bank of Japan's negative interest-rate policy. MUFG's pre-tax profit expanded 8% to JPY1.4 trillion in FY Mar 2018, translating into a still low return on risk-weighted assets of 1.2%. This was subsequently lifted to 1.5% in 1H FY Mar 2019, thanks to write-back of impairment charges and higher gains from sale of equity securities.
Chan Yin Huei
(603) 7628 1180
(603) 7628 1162
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