Moody's Japan K.K. said July 19 that it downgraded itsoutlook on Higo Bank Ltd.to negative from stable due to the opacity of its disclosure following itsmerger with in 2015.
The lowered outlook on the lender's ratings reflects itssimplified public disclosure after its merger with Kagoshima Bank. Higo Bank'sdisclosure is now less informative and reduces the transparency of the lender'srisk position and financial performance, Moody's said. It added that the bankhas also yet to fully assess some remaining uncertainties regarding thelonger-term financial impact of the earthquake that hit Kumamoto Prefecture inApril.
At the same time, the rating agency affirmed the bank'slong-term bank deposit rating at A1, short-term bank deposit rating at Prime-1,as well as its baseline credit assessment and adjusted baseline credit assessmentat "a3." The bank's A1(cr) long-term counterparty risk assessmentsand Prime-1(cr) short-term counterparty risk assessment were also affirmed.
Higo Bank's baseline credit assessment reflects its moderateasset risk profile, moderate capitalization, strong liquidity and weakprofitability, the rating agency said. It added that the lender's profitabilityhas been low due to Japan's low interest rate environment and fiercecompetition in the banking sector.
A downgrade of Higo Bank's ratings could result from itstangible common equity ratio falling below 11%, a sharp increase in market riskexposure, continuing deterioration in profitability or a downgrade of Japan'ssovereign rating, Moody's said. An upgrade of the bank's ratings is unlikely.