(The following was released by the rating agency)
Link to Fitch Ratings' Report: Japanese Banks: Better
Positioned Despite Growing JGB Exposure here
TOKYO, February 24 (Fitch) Fitch Ratings says in a new
report that Japan's banks are better protected by a higher loss
absorption capacity despite a substantial and an increasing
exposure to Japanese government bonds (JGBs).
The improvement in capitalisation has been more notable at
major banks in particular, reflecting sustained, albeit still
modest, internal capital generation. As a result, their capital
positions now compare favourably with that of many global peers.
The major banks' exposure to JGBs exceeds their Tier 1
capital by four times on average. Fitch expects such exposure to
continue to rise, given the banks' abundant yen liquidity and
limited alternative investment options.
In its analysis Fitch concludes that only a severe rise in
JGB yields would have a marked impact on the major banks'
capital. Despite increased sensitivity to interest rate
movements arising from an increased portfolio size and longer
duration compared with 2009, the banks are in a healthier
position due to their higher capitalisation levels. In most
cases, the banks are resilient even under the worst of the
potential conditions including the extreme scenario observed for
Italian government bonds in 2011.
Key risk-mitigating factors for Japanese banks include
strong liquidity positions backed by solid retail funding bases
as well as low loans/deposits ratios (approximately 70% on
average), and still modest durations on the bond portfolios.
Fitch believes the banks are less likely to face funding
pressure that would force them to liquidate their bond
portfolios and realise valuation losses, even in a scenario of
substantially higher bond yields.
The special report titled "Japanese Banks: Better Positioned
despite Growing JGB Exposure" is available on
www.fitchratings.com or by clicking on the link above.