DBRS : Confirms Mizuho at A; Trend Stable

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Date of Release: January 30, 2017

January 30, 2017

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DBRS Ratings Limited (DBRS) has today confirmed the ratings of Mizuho Bank Ltd (Mizuho or the Bank), including the 'A' Long-Term Deposits & Senior Debt ratings. The trend on all ratings is Stable. Mizuho's ratings incorporate an intrinsic assessment (IA) of A (low), which is based upon the financial strength of the consolidated Mizuho Financial Group (the Group), and systemic support uplift of one notch. All ratings are now on a solicited basis.

Concurrently, DBRS has initiated ratings coverage of Mizuho Bank, Ltd. Canada Branch (Mizuho Canada Branch). DBRS has assigned a Long-Term Deposits & Senior Debt rating of 'A', a Short-Term Instruments rating of R-1 (low) and a BDN Programme rating of R-1 (low). The trend on all ratings is Stable. DBRS has assigned a support assessment of SA1 to Mizuho Canada Branch, reflecting DBRS's view that Mizuho Canada Branch is integral to the operations of its parent. The assigned ratings are also consistent with DBRS's Support Methodology for branches in highly rated countries. As a result, the ratings are line with the parent, Mizuho Bank Ltd.

The confirmation of the Bank's ratings reflects the strength of the Group's domestic wholesale and retail franchise, along with its growing international operations, which have helped to offset the challenges presented by the Group's low growth, low interest-rate domestic market. The ratings also incorporate the Group's reasonable capital levels, good credit quality and solid funding base, whilst also recognising the earnings pressure presented by the domestic environment.

Despite solid overseas loan and non-interest income growth in recent years, Mizuho's earnings remain pressured by weak domestic loan demand and low interest rate environment within Japan. In 1H16, Mizuho reported profit attributable to owners of parent of JPY 358.1 billion, down 7% year-on-year (YoY), as gross profits decreased 4% YoY. In light of the current operating environment, DBRS therefore views positively Mizuho's focus on cost control, with the Group targeting a medium-term efficiency ratio of approximately 60%.

DBRS views Mizuho's credit risk profile as generally conservative. The Group's loan book shows good levels of industry diversification, and credit quality remains strong, with a non-performing loans (NPLs) ratio of only 0.98% at end-1H16, when calculated on an aggregate Mizuho Bank (MHBK) and Mizuho Trust & Banking (MHTB) basis and a coverage ratio of 74.3%. DBRS also notes that the Group's lending exposure to sectors which are currently more susceptible to increased volatility, such as energy, appears well managed, with only 0.6% of the Group's JPY 6.7 trillion resource sector (energy and mineral) exposure classified as non-performing at end-1H16. Despite significant growth in recent years, the quality of Mizuho's overseas lending also remains strong, with NPLs accounting for only 0.5% of overseas loans at end-1H16, and over 70% of loans were to investment grade companies.

The Group's Japanese equities and government bond holdings present certain risk management challenges. Despite progress in reducing Japanese Government Bond (JGB) holdings in recent years, the Group's JGB portfolio remains significant at JPY 10.3 trillion at end-1H16, equivalent to 130% of Tier 1 capital. Mizuho also faces market risk from its considerable exposure to Japanese equities, which has the potential to lead to both P&L and capital ratio volatility as a result of unrealised gains and losses. DBRS does, however, positively note Mizuho remains committed to its planned cumulative disposal of Japanese equities, with the Group disposing of JPY 48.1 billion in 1H16, against a target of JPY 250 billion by end-FY16, and JPY 550 billion by end-FY18. As a result, the Group's Japanese equity investments based on acquisition cost decreased marginally to 22.5% of Tier 1 capital at end-1H16.

Mizuho's funding and liquidity profile is strong, as a result of the Group's significant liquidity reserves and stable domestic deposit franchise. At end-1H16, the net loan-to-deposit (LTD) ratio was 61.3%, driven predominantly by the Group's strong domestic deposit base. Whilst Mizuho's overseas operations rely on a larger proportion of market funding, the Group has made progress in growing its overseas customer deposit base in recent years, as indicated by the significant reduction in overseas LTD ratio from 154% at end-FY13 to 114% at end-1H16. DBRS also notes positively the Group's minimal use of US Prime MMF funding. The Group's liquidity profile also remains solid, with Mizuho reporting an average Liquidity Coverage Ratio (LCR), on a transitional basis, between July and September 2016, of 137.4% at end-1H16.

Although still weaker relative to its Japanese peers, Mizuho's capital position has continued to strengthen in recent years, with the Group reporting a fully-effective Common Equity Tier 1 (CET1) ratio (including net unrealised gains on marketable securities) of 10.99% at end-1H16, and a transitional Basel III leverage ratio of 4.05%. Although Mizuho's fully-effective CET1 ratio drops to 9.14% at end-1H6 when excluding the impact of net unrealised gains on marketable securities, DBRS notes that it remains well above the end-2019 regulatory minimum of 8%. With an estimated Total Loss Absorbing Capacity (TLAC) ratio of 16.1% at end-1H16, including the 2.5% contribution of the Japanese deposits insurance system and 1.3% of TLAC eligible debt, DBRS also views the Group as well positioned to meet minimum future TLAC requirements.

RATING DRIVERS
Positive rating pressure could result from a strengthening of capital ratios, and further diversification of revenues, whilst maintaining a strong, conservative risk profile.

Negative rating pressure could result from a significant increase in the Group's risk profile as a result of its overseas expansion, or from a downgrade of the sovereign.

Notes:
All figures are in JPY unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (July 2016). Other applicable methodologies include the DBRS Criteria: Support Assessments for Banks and Banking Organisations (March 2016) and DBRS Criteria: Rating Bank Capital Securities - Subordinated, Hybrid, Preferred & Contingent Capital Securities (February 2016). These can be found can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include company documents, the Bank of Japan, the Japanese Financial Services Authority and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive Trend are resolved within a twelve month period. DBRS's outlooks and ratings are under regular surveillance

For further information on DBRS historical default rates published by the European Securities and Markets Authority ('ESMA') in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Lead Analyst: Elisabeth Rudman - Managing Director, Head of EU FIG, Global FIG
Rating Committee Chair: Roger Lister - Manging Director, Chief Credit Officer, Global FIG & Sovereign Ratings
Initial Rating Date: November 1, 2000
Last Rating Date: February 18, 2016

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Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at [e-mail].

Ratings

Issuer	Debt Rated	Rating Action	Rating	Trend	Notes	Published	Issued
Mizuho Bank, Ltd.	Issuer Rating	Confirmed	A	Stb		Jan 30, 2017	EU
Mizuho Bank, Ltd.	Long-Term Deposits and Senior Debt	Confirmed	A	Stb		Jan 30, 2017	EU
Mizuho Bank, Ltd.	Short-Term Instruments	Confirmed	R-1 (low)	Stb		Jan 30, 2017	EU
Mizuho Bank, Ltd., Canada Branch	Long-Term Deposits & Senior Debt	New Rating	A	Stb		Jan 30, 2017	EU
Mizuho Bank, Ltd., Canada Branch	Short-Term Instruments	New Rating	R-1 (low)	Stb		Jan 30, 2017	EU
Mizuho Bank, Ltd., Canada Branch	Short-Term Instruments - Bank Deposit Note Programme	New Rating	R-1 (low)	Stb		Jan 30, 2017	EU

US = USA Issued, NRSRO CA = Canada Issued, NRSRO EU = EU Issued E = EU Endorsed
Unsolicited Participating With Access
Unsolicited Participating Without Access
Unsolicited Non-participating

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