Investing.com -- Moody's Ratings has affirmed the A1 long-term foreign currency senior unsecured debt ratings of Mizuho Financial Group, Inc., with a stable outlook.
The rating agency also affirmed the A1 long-term domestic and foreign currency deposit ratings and baa1 Baseline Credit Assessment (BCA) of Mizuho's core subsidiary banks, Mizuho Bank, Ltd. and Mizuho Trust & Banking Co., Ltd.
The affirmation reflects Moody's expectation that the group's profitability will gradually improve while remaining lower than Japanese and global peers with higher standalone credit profiles. Moody's also expects Mizuho to maintain adequate capital, strong asset quality, funding and liquidity.
Mizuho's A1 ratings sit three notches above its baa1 BCA, reflecting Moody's assumption of very high likelihood of support from the Japanese government in times of need. This support assumption stems from the group's importance to Japan's financial system as one of the country's top three financial institutions by total assets.
The group's profitability, measured by net income to tangible assets, improved to 0.27% in fiscal year ended March 2025, up from 0.14% in fiscal 2019. This improvement was partly driven by efforts to replace lower-margin assets with higher-margin assets and focus on cost control.
Moody's expects rising domestic interest rates will further boost Mizuho's profitability through net interest margin expansion and reinvestment of liquid assets into higher-yielding Japanese government bonds. The agency anticipates margin expansion will outweigh increases in loan-loss provisions.
Mizuho's capital position has strengthened over recent years, with its tangible common equity to risk-weighted assets ratio increasing to 12.4% at the end of fiscal 2024 from 10.6% in fiscal 2019. However, this capital level remains lower than global peers with higher BCAs.
On a mid-term pro forma basis, Mizuho's TCE ratio is expected to decline by approximately 150-200 basis points after accounting for the impact of Basel III finalization rules, which will be fully implemented by March 2029.
The group's asset risk is low, supported by a well-diversified loan portfolio focused on blue-chip overseas companies. As of March 2025, the problem loan ratio of Mizuho banks' overseas loans was 0.26%, significantly lower than its domestic problem loan ratio of 1.46%.
Mizuho's consolidated problem loan ratio improved to 1.11% at the end of March 2025 from 1.35% a year earlier. The group's liquidity remains strong with a low loan-to-deposit ratio of 54% as of March 2025.
According to Moody's, a rating upgrade for Mizuho is unlikely as its ratings are already at the same level as Japan's A1 sovereign rating. However, the BCA could be upgraded if Mizuho's profitability improves with ROA exceeding 0.5% or if its TCE ratio rises above 13% on a sustained basis.
Conversely, Moody's could downgrade Mizuho's BCA and ratings if its ROA falls below 0.2% or TCE ratio drops below 10% on a sustained basis, among other factors.
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