(The following was released by the rating agency)
-- Standard & Poor's sees an improved balance between
Shinsei Bank's risk volume and capital and earnings, thanks to
accumulated retained earnings and reduction in risk assets.
-- The bank's revenue base has been stabilizing as its risk
of incurring a large amount of nonrecurring losses arising from
its consumer finance and real estate nonrecourse finance
businesses has been receding.
-- We are revising the outlook to stable from negative and
affirming the long-term counterparty credit rating on the bank
-- We are raising by one notch to 'BB+' the debt rating on
the bank's perpetual subordinated bonds and upgrading its
preferred securities by three notches to 'BB'.
TOKYO (Standard & Poor's) Dec. 14, 2012--Standard & Poor's
Ratings Services today revised to stable from negative its
outlook on the long-term counterparty credit rating on Shinsei
Bank Ltd., following our revision of the bank's stand-alone
credit profile (SACP) to 'bbb'.
The SACP excludes the likelihood of government extraordinary
support. The SACP revision is based on our view that the balance
between the bank's risk volume and capital and earnings has
improved, thanks to a reduction in risk assets resulting from
improved asset quality and accumulated retained earnings.
At the same time, we raised the debt rating on the bank's
perpetual subordinated debt by one notch to 'BB+' from 'BB' and
upgraded the preferred securities by three notches to 'BB' from
'B'. In addition, we affirmed the 'BBB+' long-term and 'A-2'
short-term counterparty credit ratings on Shinsei Bank, the
'BBB+' debt rating on its long-term senior bonds, and the 'BBB'
debt rating on its dated subordinated bonds.
Our outlook revision is based on a change in our assessment
of Shinsei Bank's capital and earnings to "adequate" from
"moderate" and an upward revision of the bank's SACP to 'bbb'
from 'bbb-'. Previously, the outlook on the long-term
counterparty credit rating on the bank reflected that on the
long-term sovereign rating on Japan (AA-/Negative/A-1+).
However, with Shinsei Bank's current 'bbb' SACP and our
assessment of its "moderately high" likelihood of extraordinary
government support in a time of need, the outlook on the bank is
not directly affected by that on the sovereign rating on Japan.
The long-term counterparty credit rating on the bank is one
notch higher than the SACP because it takes into account the
likelihood of extraordinary government support.
For the past several years, Shinsei Bank's revenues were
squeezed by credits costs due to factors including weak real
estate market conditions and deterioration in the consumer
finance industry. However, we believe the bank's revenues have
become more stable and it now faces a lower risk of incurring
material losses. The consumer finance market has also shown
signs of stabilizing and the bank has made progress in disposing
of nonperforming loans.
In the first half of fiscal 2012 (April 1 to Sept. 30,
2012), Shinsei Bank posted a JPY4.7 billion nonrecurring loss
arising from impairment losses on real estate nonrecourse
finance and other factors. The losses, including refunds of
overcharged interest in its consumer finance business, have
decreased substantially from a half-year average of JPY30.9
billion for the past two years.
In addition, the balance between its risk volume and
capital and earnings has been improving due to a reduction in
risk assets, such as securitized products, in our view. We
expect the bank's risk-adjusted capital (RAC) ratio, which we
view as a key indicator of credit quality, to be at mid-7% in
the next 12 to 18 months.
We upgraded Shinsei Bank's preferred securities to 'BB'
from 'B' because we revised upward the SACP and narrowed the
degree of notch-down in the rating on the preferred securities
from the SACP to three notches from five notches. This was based
on our view that the bank now faces a lower risk of running
short of distributable reserves to make dividend payments,
thanks to accumulated profits and a lower risk of losses.
Previously, the degree of notch-down in the rating on
Shinsei Bank's preferred securities from its SACP was greater
than that of the general preferred securities issued by other
Japanese banks because Shinsei Bank's distributable reserves,
which could be a trigger to defer its dividend payments, were
limited. Meanwhile, the notch-down in the rating on the bank's
perpetual subordinated debt remains unchanged.
However, we raised the debt rating on the perpetual
subordinated debt to 'BB+' from 'BB' in tandem with the upward
revision of the SACP. The stable outlook reflects our view that
the bank will maintain its credit quality at a level
commensurate with the current rating in the medium term. We may
consider lowering the ratings if the bank's risk assets increase
at a faster pace than our assumptions and the likelihood of the
RAC ratio falling below 7% heightens due to a delay in capital
accumulation through earnings.
If we see a higher likelihood of deterioration in the
bank's financial performance that exceeds our assumptions due to
material losses from worsening business conditions, that could
also be a downgrade trigger for the bank. Conversely, we may
upgrade the bank if we believe it has further strengthened its
capitalization, which could be indicated by a rise in its RAC
ratio to over 10%.
We may also consider an upgrade if it improves its risk
position. Specifically, the ratings may get a boost if the
bank's credit concentration continues to improve while its
credit costs continue to fall below the normalized losses that
Standard & Poor's has calculated in its RAC framework.