Moody's upgraded the long-term bank deposit ratings ofShinsei Bank Ltd. toBaa2 from Baa3 but downgraded the ratings outlook to stable from positive.

The rating agency also upgraded the bank's baseline credit assessmentand adjusted baseline credit assessment to "ba1" from "ba2."The bank's short-term deposit ratings were upgraded to Prime-2 from Prime-3.

The bank's counterparty risk assessments were upgraded toBaa1(cr)/Prime-2(cr) from Baa2(cr)/Prime-3(cr), Moody's said July 19.

The ratings upgrade was driven by the change in the bank'sbaseline credit assessment due to its improving asset quality and capitalposition. Shinsei Bank's problem loans to total loans ratio improved to 2.09%as of March 31, compared to 2.72% in the prior-year period. Moody's expects theratio to improve further as the bank continues to resolve its problem loans.

The rating agency may upgrade the ratings if the bankcontinues to build its capital buffers or if it builds on its deposit basewithout offering higher interest rates. Further developments in the bank'slong-term commercial loan relationships that result in stable fee generationmay also lead to a ratings upgrade.

On the other hand, Moody's may downgrade the ratings if thebank's risk assets rise or if it expands into high-risk businesses to pursuehigher returns. A ratings downgrade may also occur if Japan's sovereign ratingis downgraded or if the bank fails to maintain its deposit base.