Fitch Concerned About Capital Ratios of Japanese Banks

Fitch Ratings is raising questions about Japanese banks, especially as Japan’s economy has slid into recession and bank share prices have plummeted. Profits are being crimped by the high cost of credit.

From March to September, profits for major Japanese banks was JPY475 billion, or less than half the level for the same period in 2007, Fitch said. The ratings agency is concerned about capital ratios slipping and about banks’ exposure to leveraged buyouts.

On the bright side, Fitch points out that Japan’s banks have very little exposure to the global subprime fallout and that as of Sept. 30, their combined exposure to overseas asset-backed and commercial mortgage-backed securities was a slim 20 percent of Tier one capital.

Fitch has already downgraded the Individual Ratings of the three megabanks Mizuho, Mitsubish UFJ Financial Group and Sumitomo-Mitsui Financial Group. Their IDRs remain at ‘A+’, as Fitch believes their default risk remains low given their large size, extensive domestic franchises and strong potential for state support should this be needed.

For other banks negative rating actions are possible depending on the impact of the financial crisis and the faster-than‐expected deterioration in their risk profile.