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Moody's assigns ratings to Japan's 77 Bank

Moody's assigned Japan's 77 Bank Ltd. long- and short-term bank deposit ratings of A2 and P-1, respectively, with a stable outlook.

The rating agency said Oct. 12 that it also assigned the bank a baseline credit assessment and adjusted baseline credit assessment of "baa1," as well as counterparty risk assessments of A1(cr)/P-1(cr).

The long-term deposit rating incorporates a two-notch lift from the bank's baseline credit assessment, reflecting the rating agency's assumption of a very high likelihood of support from the Japanese government if needed, given the bank's importance to the local economy in Miyagi Prefecture.

The lender's baseline credit assessment is supported by its strong liquidity profile, modest asset risk, stable but weak profitability and modest capitalization, Moody's said.

The stable outlook on 77 Bank reflects Moody's expectation that the lender is likely to maintain its strong liquidity profile, while its profitability will continue to show strain because of the ultralow interest rate environment.

While Moody's said 77 Bank is exposed to market risk through its large bond holdings, the rating agency expects this exposure to gradually fall due to the completion of reconstruction associated with the March 2011 earthquake in Japan, as well as the decline in deposits from the local government. As such, Moody's expects the bank's loan-to-deposit ratio to improve gradually.