Research: Rating Action: Moody’s Affirms Sumitomo Mitsui Trust Bank’s A1 Ratings; stable outlook

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Tokyo, August 04, 2022 — Moody’s Japan KK has confirmed all ratings assigned to Sumitomo Mitsui Trust Bank, Limited (SMTB) and its subsidiaries. The outlook for ratings is stable.

The confirmed ratings and assessments are as follows:

Sumitomo Mitsui Trust Bank, Limited:

– Basic Credit Assessment (BCA): confirmed at a3

– Adjusted BCA: affirmed at a3

– Rating of long-term bank deposits (domestic and foreign currencies): confirmed at A1, outlook stable

– Short-term bank deposit ratings (domestic and foreign currencies): confirmed at P-1

– Senior unsecured debt rating (domestic and foreign currency): confirmed at A1, outlook stable

– Senior unsecured portfolio (domestic currency): confirmed at (P)A1

– MTN senior unsecured (domestic and foreign currency): confirmed at (P)A1

– Other short term (domestic and foreign currency): confirmed at (P)P-1

– Senior subordinate (national currency): confirmed at A2

– Long-term counterparty risk ratings (domestic and foreign currencies): confirmed at A1

– Short-term counterparty risk rating (domestic and foreign currency): confirmed at P-1

– Assessment of long-term counterparty risk: confirmed at A1(cr)

– Assessment of short-term counterparty risk: confirmed at P-1(cr)

– The outlook remains stable

Sumitomo Mitsui Trust Bank (USA) Limited:

– Long-term ratings of issuers (domestic and foreign currencies): confirmed at A1, stable outlook

– The outlook remains stable

Sumitomo Mitsui Trust Bank, Ltd., New York Branch:

– Treasury bills (national currency): confirmed at P-1

– Short-term counterparty risk rating (domestic and foreign currency): confirmed at P-1

– Assessment of short-term counterparty risk: confirmed at P-1(cr)

Sumitomo Mitsui Trust Bank, Ltd., Singapore Branch:

– Commercial papers (foreign currencies): confirmed at P-1

– Short-term counterparty risk rating (domestic and foreign currency): confirmed at P-1

– Assessment of short-term counterparty risk: confirmed at P-1(cr)

RATINGS RATIONALE

SMTB’s BCA a3 affirmation reflects Moody’s assessment of the very low asset risk of Sumitomo Mitsui Trust Holdings, Inc. (SMTH)(1), supported by its large portfolio of retail mortgages; (2) improved capital; (3) low but stable profitability, reflecting its low business risk focused on trusted banking; and (4) strong liquidity.

SMTB’s loan portfolio, consisting mainly of large corporate loans and retail mortgages, has low asset risk.

SMTH’s problem loan ratio fell to 0.7% at the end of March 2022, from 0.4% a year earlier, mainly due to the default of a few large borrowers. However, the ratio was well below the 1.3% average for all Japanese banks at the end of March 2022. Additionally, SMTH has relatively less foreign bond investments than its megabank peers and losses unrealized losses on its holdings of foreign bonds were very low from the end of March 2022.

SMTH’s consolidated tangible equity (TCE) to risk-weighted assets (RWA) or TCE ratio improved to 11.4% at the end of March 2022, from 10.5% at the end of March 2019, mainly due to of a steady accumulation of profits. Moody’s expects SMTH’s consolidated TCE ratio to remain stable at 11% or higher on a sustained basis, as SMTH steadily accumulates retained earnings, while controlling the growth of its risk-weighted assets.

SMTH’s profitability, as measured by net income/tangible assets, is weaker than its peers with a BCA of a3, due to the low interest rate environment in Japan. However, the ratio has remained stable around 0.2%-0.3% in recent years. Moody’s expects SMTH’s profitability to remain stable, given its focus on net fee and commission growth, particularly in retail financial services and trust services. Fees and commissions represented 54.0% of SMTH’s gross profit in the fiscal year ended March 2022 (fiscal 2021). SMTH’s fee income ratio is significantly higher than the 20% to 30% industry average for Japanese commercial banks.

SMTB’s A1 long-term ratings incorporate two notches up from the bank’s a3 BCA, reflecting Moody’s assessment of a very high likelihood of Japanese government support (A1 stable) in times of crisis, given the importance of the bank to the country’s banking system. . SMTB is the largest fiduciary bank in Japan by assets, and SMTH is designated as a national systemically important bank by the Financial Services Agency of Japan.

SMTB’s stable ratings outlook reflects Moody’s expectation that SMTH’s financial metrics will remain broadly unchanged, given its low but stable profitability and very low asset risk.

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

An upgrade in the bank’s rating is unlikely, as SMTB’s A1 long-term deposit rating is on par with Japan’s sovereign rating.

In addition, upward pressure on SMTB’s BCA is unlikely unless there is a significant change in Japan’s operating environment that is conducive to higher profitability and translates into higher strong generation of capital.

Factors that could lead to a downgrade of SMTB’s rating include, but are not limited to: (1) a downgrade in Japan’s sovereign rating; or (2) SMTH’s TCE ratio remaining below 9% on a long-term basis.

The main methodology used in these ratings is the (Japanese) bank methodology published in July 2021 and available on https://ratings.moodys.com/api/rmc-documents/73737. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Tokyo-based Sumitomo Mitsui Trust Bank, Limited (SMTB) is Japan’s largest trust bank by assets. At the end of March 2022, the bank’s consolidated assets stood at 64.3 trillion yen.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued without modification as a result of such disclosure.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement was issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Tetsuya Yamamoto
VP – Senior Credit Officer
Financial Institutions Group
Moody’s Japan KK
Atago Green Hills Tower Mori 20fl
2-5-1 Atago, Minato-ku
Tokyo, 105-6220
Japan
JOURNALISTS: 81 3 5408 4110
Customer service: 81 3 5408 4100

Graeme known
MD – Bank
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Customer Service: 852 3551 3077

Release Office:
Moody’s Japan KK
Atago Green Hills Tower Mori 20fl
2-5-1 Atago, Minato-ku
Tokyo, 105-6220
Japan
JOURNALISTS: 81 3 5408 4110
Customer service: 81 3 5408 4100

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