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February 14, 2008 |
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RESONA BANK: Fitch Affirms D Individual Rating Fitch Ratings has affirmed Resona Bank's Individual and Support ratings at 'D' and '2', respectively. The Individual rating reflects the bank's weak capital quality as well as the pressure to complete the repayment of public funds, limiting their growth prospects, which, in turn, serve to constrain the rating. Capital quality remains weak at Resona as it is heavily reliant on public funds. As of end-September 2007, Resona still had JPY2,338 billion of outstanding public funds after the partial repayment of JPY533 billion in January 2007 on a group basis. Resona's capital ratios further improved to 6.53% for Tier 1 and 10.76% for total at end-September 2007. This was due in part to the large retained earnings in the fiscal year to March 2007 stemming from a change in the estimation period of future taxable income to five years from one year for the calculation of deferred tax assets. Excluding the effects from the tax adjustment, Fitch views that the growth in capital ratios would have been smaller. Although retained earnings have been accumulated as a source of future repayments, Fitch sees that upgrades are difficult until the bank's capital quality substantially improves. Fitch calculates the bank's consolidated top-line revenue as the sum of net interest revenue, trust fees, fees and commissions, revenue from trading account transactions, other operating revenue, and other recurring income (excluding stock related income), which has been declining. The decline was mainly due to effects from one-off items, including declining number of subsidiaries and losses on the disposal of bond portfolios. In addition, Resona's bottom-line profitability (ROA: 0.7%, ROE: 14.34% at end-September 2007) remained satisfactory by Japanese banks standard. However, Fitch is of the opinion that Resona's growth prospects are weak as public funds limit the flexibility in management and investment for future growth. The Support rating of '2' is based on Fitch's view that there is a high probability of support for Resona from the state should it be necessary. |
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