The credit rating of Joint Stock Company MUFG Bank (Eurasia) (hereinafter, MUFG Bank, or the Bank) is based on its close relationship with the supporting parent company (hereinafter, the Group, Supporting Entity, or the SE). The standalone creditworthiness assessment (SCA) remains at a+ and is a reflection of the Bank’s adequate business profile, strong position in terms of capitalization and profitability, and adequate risk profile and assessment of funding and liquidity.
The assignment of the status “Rating under review: developing” is due to the Japanese Government imposing certain restrictions with regard to the investment activities of Japanese companies in the Russian Federation. This in turn creates uncertainty with regard to the influence of possible barriers and limitations on the SE’s ability to provide extraordinary support and makes it necessary to conduct an additional analysis of the consequences of these restrictions on the creditworthiness of the Bank.
The sole shareholder of MUFG Bank is the largest Japanese bank and a key entity of a global financial group. The Bank continues to provide universal banking and lending services to Japanese companies operating in Russia.
key assessment factors
The very high likelihood of extraordinary support fr om the Group, despite external regulatory restrictions is due, in ACRA’s opinion, to the strong reputational ties between the Bank and the SE. In its assessment of the possibility of the SE providing support to the Bank, ACRA believes that the SE retains its capability to provide support, despite the Japanese Government’s change in approach to regulating the flow of capital between Japan and Russia (capital injections and other investments with a duration of more than one year have to be approved by the Japanese regulator).
At the same time, the development of the sanctions mechanism may impact the SE’s ability to provide extraordinary support in all forms, which is reflected by the assignment of the status “Rating under review: developing” to the Bank’s credit rating. Signs of further deterioration of the freedom of cash flow movement between Japan and the Russian Federation and/or confirmation that it is not possible for the SE to provide support in any form may be grounds for a significant rating downgrade.
The significance of other factors in determining support takes into account the approaches of the Methodology for Analyzing Rated Entities Associated with a State or a Group and reflects the Agency’s opinion that if necessary, the SE may provide financing to MUFG Bank. ACRA takes into account the following factors:
The creditworthiness of the Group is high compared to the standalone creditworthiness of the Bank. The scope of MUFG Bank’s business is not a factor that could lim it the effectiveness of potential support;
The Group exercises complete shareholder and operational control over the Bank (the parent company determines the Bank’s corporate risk management procedures and standards, taking into account Russian law);
The Bank and the Group operate under the same brand and therefore possible disruptions in the operations of the subsidiary will be a source of reputational risks for the Group;
Practically all of the Bank’s loan portfolio issued is guaranteed by the SE;
The diversified structure of the Group, which is represented worldwide, contributes to somewhat greater flexibility in the choice of approaches to providing support.
Adequate business profile assessment. The Bank’s activities are fully determined by the goals and objectives of the Group. Its main focus is servicing corporate clients who are subsidiaries and local representative offices of Japanese companies. The Agency positively assesses the low risk appetites of the Bank’s management, as well as the global experience and management approaches available to it.
At the same time, current geopolitical tensions, in ACRA’s opinion, may influence the prospects of development of MUFG Bank. At the moment, the vast majority of the Bank’s customers are in wait-and-see mode, while monitoring changes in the operating environment.
The strong assessment of capitalization and profitability is based on a historical excess capital adequacy cushion and ACRA’s expectations that in the current conditions, pressure on capital from rapid business growth is unlikely. In many respects, the high values of regulatory capitalization are supported by the SE’s guarantees for the Bank’s issued loans, as well as a cautious approach to risk taking — a significant part of the balance sheet is represented by liquid assets with relatively low risk weights.
The Bank recorded significant growth of profitability in H1 2022 amid the increase of the Bank of Russia’s key rate at the start of the year. ACRA expects profitability metrics to gradually approach their usual values due to the key rate returning pre-crisis levels. In addition, pressure on financial results may be driven by continuing uncertainty with regard to the degree of economic activity of the key clients of MUFG Bank.
The adequate risk profile assessment is determined by the high corporate governance standards and ACRA’s opinion that the credit risks on the Bank’s balance sheet are low. The latter are minimized by the fact that the overwhelming part of the credit portfolio is backed by guarantees from the SE and/or the parent companies of borrowers with high credit quality. High concentration on the largest counterparties, however, continues to be a negative rating factor.
The funding and liquidity assessment is adequate due to the substantial cushion of liquid assets and the presence of strong established partnerships with the main holders of customer funds. At the same time, ACRA notes high concentrations on individual counterparties, which is due to the nature of the Bank’s business model.
The Bank retaining its current business model, shareholder and operational control over the next 12–18 months;
A certain level of uncertainty regarding current and possible future restrictions that hinder the smooth operation of the Bank and the receipt of external support from the Group.
potential outlook or rating change factors
The “Rating under revision: developing” status assumes a variety of trends: the rating may stay unchanged, or be downgraded.
Removal of the “Rating under revision: developing” status and affirmation of the credit rating may be prompted by:
ACRA obtaining confirmation of the absence of uncertainty regarding the SE’s provision of financial support to the Bank in the form of capital and/or liquidity.
Removal of the “Rating under revision: developing” status and downgrade of the credit rating may be prompted by:
The Agency receiving confirmation of a significant reduction of the Group’s willingness or ability to support the Bank;
Change to the ownership structure of the Bank in the event that the Group’s interest in maintaining a Russian presence falls significantly.
Individual adjustments: none.
Support: ACRA assumes that the SE will maintain the ability to provide extraordinary support to the Bank to the extent necessary to ensure its smooth operation. Taking into account the support factors, the Bank’s rating is set at AAA(RU).
There are no outstanding issues.
The credit rating has been assigned under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Banks and Bank Groups under the National Scale for the Russian Federation, Methodology for Analyzing Rated Entities Associated with a State or a Group, and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.
The credit rating of Joint Stock Company MUFG Bank (Eurasia) was published by ACRA for the first time on October 2, 2018. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.
The credit rating was assigned based on data provided by Joint Stock Company MUFG Bank (Eurasia), information from publicly available sources, and ACRA’s own databases. The rating analysis was performed out using the IFRS financial statements of Joint Stock Company MUFG Bank (Eurasia) and the financial statements of Joint Stock Company MUFG Bank (Eurasia) drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and Joint Stock Company MUFG Bank (Eurasia) participated in its assignment.
In assigning the credit rating, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to Joint Stock Company MUFG Bank (Eurasia). No conflicts of interest were discovered in the course of credit rating assignment.