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JAPANESE BANK STRUCTURED RATINGS ON FITCHALERT NEGATIVE -- FITCH FINANCIAL WIRE --

 JAPANESE BANK STRUCTURED RATINGS ON FITCHALERT NEGATIVE
 -- FITCH FINANCIAL WIRE --
 NEW YORK, April 10 /PRNewswire/ -- The long- and short-term structured transaction ratings of all Japanese banks rated by Fitch are placed on FitchAlert with negative implications. The plunge in the Nikkei average has affected all Japanese financial institutions. A number of ratings could be lowered to the 'A' category. Short-term ratings are not expected to fall below 'F-1.'
 Bank Rating
 (Long/Short-Term)
 Bank of Tokyo AA-/F-1+
 Dai-Ichi Kangyo Bank Ltd. AA-/F-1+
 Industrial Bank of Japan, Ltd. AA+/F-1+
 Long-Term Credit Bank of Japan, Ltd. AA/F-1+
 Mitsubishi Bank, Ltd. AA+/F-1+
 Mitsubishi Trust & Banking Corp., Ltd. F-1+
 Sakura Bank, Ltd. F-1+
 (formerly Mitsui/Taiyo Kobe Bank, Ltd.)
 Sumitomo Bank, Ltd. AA/F-1+
 Sumitomo Trust & Banking Co., Ltd. AA/F-1+
 Toyo Trust & Banking Co., Ltd. AA-/F-1+
 Institutions with ratings under the greatest pressure are the Industrial Bank of Japan (IBJ), Sumitomo Trust, and Toyo Trust. The Dai-Ichi Kangyo Bank (DKB), Mitsubishi Bank, Sumitomo Bank, and Long-Term Credit Bank of Japan would be less severely affected by any rating action. Fitch will review loan quality and earnings results for the March 31, 1992, reporting date and expects to take rating action by June.
 The institutions face the prospect of falling below the minimum BIS 8 percent capital standard if the decline in the Nikkei persists. Other than one directed merger, Japanese regulators have taken no overt actions to shore up the capital of these banks. Also, all the banks are expected to collaborate in rehabilitations of troubled loans. This effort will help weaker banks retain capital while placing added pressure on stronger banks.
 Any rating changes will hinge most importantly on earnings and asset quality. If the Nikkei continues to decline, banks will be unable to lend to middle market companies because of capital constraints. This had been the key market expected to propel future earnings growth. The ensuing credit crunch will result in higher failures among these companies and will diminish the ability of Japanese banks to build retained earnings.
 Capital pressures are also restricting involvement in the derivatives and structured finance markets, areas in which the banks have invested heavily. The banks are losing the ability to participate in more lucrative longer-term swaps contracts as well as credit-enhanced municipal bonds and asset-backed securities. Both areas produced strong fee income for the banks, notably DKB and IBJ.
 These earnings pressures are compounded by the need to provision against loans backed by declining real estate collateral. Japanese banks are largely unaccustomed to dealing with domestic asset quality problems; workouts for all the major banks are likely to last through the decade. A mitigating factor is the general interest rate decline which has widened loan margins at many institutions, particularly city banks. The strong health of large corporations should also be taken into account because of their strong liquidity and historically high rate of capital investment.
 A minimum 8 percent total capital ratio is needed to protect depositors, strengthen bank leverage, and create a more equitable playing field among international banks. Fitch believes that Tier 1 capital in the form of equity and retained earnings is the most critical buffer against loan losses and off-balance sheet contingencies including large swaps and foreign exchange positions. Some Tier 2 capital flexibility could be supplied by the issuance of preferred stock and subordinated debt.
 An important ratings consideration will be how the Bank of Japan and the Ministry of Finance will work with the banks to respond to capital pressures. The most realistic method of rebuilding capital ratios is to continue reducing risk assets. This process will be facilitated by the Bank of Japan's "window guidance" or restrictions on loan growth through central bank lending and reserve policies.
 For more information on Japanese bank disclosure, see Fitch's report "Illusory Japanese Bank Disclosure" dated Jan. 6, 1992.
 -0- 4/10/92
 /CONTACT: Ricardo J. Kleinbaum, 212-908-0525, or Fay Wong, 212-908-0531, both of Fitch/ CO: ST: IN: FIN SU: RTG


CK -- NY016 -- 7133 04/10/92 10:18 EDT
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Date:Apr 10, 1992
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