Japan Post Bank Co. Ltd.'s plan to expand into private equity through the creation of a new asset management company is credit negative, according to Moody's.
The rating agency said Feb. 5 that the move will increase the bank's asset risks and negatively pressure its capital ratios. The plan will also create execution risks and increase risk management challenges because the bank has no experience investing in private equity.
Japan Post Bank and Japan Post Insurance Co. Ltd. agreed to set up an asset management company, Japan Post Investment Corp., to drive revenue growth through private equity investment primarily in Japan-based companies. The asset management unit will become a consolidated subsidiary of Japan Post Bank.
Japan Post Investment will invest mostly in domestic businesses and provide management support. It also will provide equity financing with other fund managers.
Moody's notes that profit from private equity fund management will not be enough to cover higher risks for the Japanese lender despite it being a high-return business. With the bank not planning to raise capital, any increase in internally generated capital will not be enough to provide an extra buffer against increased asset risks. Japan Post Bank's internal capital generation has lagged the rate of increases in asset risks, the rating agency said.
