Japan’s shaky banking system suffered a new blow Monday when Moody’s Investors Service Inc. gave 50 major Japanese banks some of the lowest ratings in the industrialized world under a new scoring system designed to assess the financial strength of individual institutions.
Under the new system, which rates banks from A (exceptional intrinsic financial strength) to E (very weak intrinsic strength), Moody’s gave E or E+ ratings to 10 of the 50 Japanese banks.
No Japanese bank got an A, and only one--Shizuoka Bank, a regional institution--got a B (strong intrinsic financial strength), while the average rating for the 50 was D (adequate strength). Even some of the most highly regarded Japanese banks, such as Mitsubishi Bank, Bank of Tokyo and Sanwa Bank, got C+ (good strength).
The ratings reflect a harsh assessment of Japan’s once-mighty financial system in comparison to other countries. Moody’s has already issued ratings of banks in 18 other nations under the new system. The only banks to get E’s in that round were two Brazilian banks and one Finnish bank.
“How embarrassing,” said Alicia Ogawa, a banking analyst at the Tokyo office of Salomon Bros. Inc. “Only two Brazilian banks get E’s and 10 Japanese banks do. This is going to put a lot of pressure on banks in general and the Ministry of Finance in particular to try to better themselves.”
The new ratings aren’t expected to have a significant effect on the willingness of foreign banks to extend credit lines to major Japanese institutions. That’s because the ratings assess the strength of banks without regard to the prospect of a government bailout, and foreign lenders know that the Finance Ministry has explicitly vowed to prevent failures at Japanese banks for at least the next five years.
Indeed, Moody’s stressed that its new system is intended only to complement, not replace, its existing ratings, which include assumptions about the capacity and willingness of governments to provide support.