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Moody's: Japan Post Bank's removal of deposit cap would be credit negative

Japan Post Bank Co. Ltd.'s potential removal of its deposit limit would be credit negative for the bank, Moody's said March 22.

Masatsugu Nagato, CEO of the lender's parent Japan Post Holdings Co. Ltd., reportedly requested that the country's Postal Services Privatization Committee lift the deposit limit for the Japanese lender.

The rating agency said that if the deposit limit removal is approved, that would be credit negative for the bank because a consequent increase in deposits would lower its already-low leverage ratio. An increase in deposits would also weaken the bank's profitability or push it to grow risk assets at the expense of its capital ratios.

Further, Japan Post Bank's nominal leverage ratio stood at 4.16% at the end of 2017, and an expansion of total assets resulting from higher deposits would further lower the ratio.

The elimination of the deposit cap would be credit negative for other Japanese banks as well, especially small and midsize institutions such as second-tier regional banks and cooperative institutions whose franchises overlap that of Japan Post Bank because their deposits are likely to decrease, Moody's noted.