Moody's Japan K.K. upgraded the long-term bank deposit ratings of Bank of Fukuoka Ltd. to A3 from Baa1.
The rating agency also raised the bank's long-term issuer rating to A3 from Baa1 and affirmed its short-term bank deposit ratings at P-2.
The bank's baseline credit assessment, or BCA, and adjusted BCA were upgraded to "baa2" from "baa3." The counterparty risk assessments were raised to A2(cr)/Prime-1(cr) from A3(cr)/Prime-2(cr).
The outlook was changed to stable from positive.
Moody's said the upgrade was due to an improvement in the tangible common equity ratio of the bank's parent, Fukuoka Financial Group Inc., which resulted in an upgrade on the bank's BCA. The rating agency expects Fukuoka Financial Group's capitalization to continue to strengthen through the accumulation of retained earnings. However, the large amount of goodwill related to the group's acquisition of Kumamoto Bank Ltd. and Shinwa Bank Ltd. in 2007 and high nominal leverage negatively affect Moody's view of the group's capitalization.
Moody's said an upgrade is unlikely due to the difficult operating environment in Japan, which would have helped the bank improve profitability. However, it may raise the bank's ratings if Fukuoka Financial Group's tangible common equity ratio further improves to around 10% on a sustained basis.
Conversely, the rating agency could lower the ratings if the parent's tangible common equity ratio falls below 7.5% or if the group's risk appetite increases significantly to sustain profitability. It could also lower the ratings if it downgrades Japan's sovereign rating.