News Column

Moody's assigns Aa3 to SMBC's certificate of deposit

April 27, 2014



Moody's Japan K.K. has assigned Aa3 rating to the

certificate of deposit issued by Sumitomo Mitsui Banking Corporation

(SMBC). The rating outlook is stable.

The specific certificate issuance is:

- USD250 million, certificate of deposit, due 29 April 2016

RATINGS RATIONALE

The Aa3 rating of SMBC's certificate of deposit (foreign currency)

incorporates a three-notch uplift from the bank's baseline credit

assessment (BCA) of a3, due to our assessment of the very high

probability of systemic support in times of stress, given the bank's

importance to Japan's financial system.

SMBC's a3 standalone BCA reflects our overall assessment of the bank's:

(1) valuable franchise in Japan's retail and wholesale banking markets;

(2) strong liquidity; (3) improving capital base; (4) higher volatility

historically evident in its profitability; and (5) high concentration

risk in Japanese corporate credit, and its equity risk relative to its

earnings and capital.

Since SMBC's Aa3 long-term deposit rating is at the same level as that

for Japanese Government Bonds (JGB), and it is one of the highest ratings

among G-SIFIs, the likelihood of upward pressure on the ratings is

remote. However, upward pressure could occur on its stand alone credit

profile if the bank could improve its capital adequacy (above 10% for its

common equity Tier 1 capital ratio on a fully loaded basis) and

profitability, while maintaining its stable and superior liquidity

profile.

Meanwhile, factors that could result in a downgrade include, but are not

limited to, the following: (1) a bottom-line annual loss due to

un-factored external developments, such as a default including debt

restructuring by Tokyo Electric Power Company (TEPCO), or a negative

spike in interest rates in Japan, (2) acquisition on a substantial scale

outside or inside Japan or (3) a downgrade of Japan's sovereign rating.

Sumitomo Mitsui Banking Corporation, headquartered in Tokyo, is one of

Japan's megabanks.


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Source: EMBIN (Emerging Markets Business Information News)


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