Aozora Bank Ltd.

The stable outlook on Aozora Bank Ltd. reflects S&P Global Ratings' view that the bank is likely in the next two years to work to better stabilize its business and earnings and to maintain adequate capital relative to risks. We may consider a downgrade if either of the following occurred: The bank's net lending margin declines, or it becomes more dependent on sources of nonrecurring revenue, such as market trading activities; or It becomes more concentrated on businesses and earnings sources that are highly susceptible to fluctuations in economic and market conditions, such as real estate loans and lending in North America; or Realization of funding risk, such as a rise in foreign currency funding costs. The likelihood of an

...We expect Aozora Bank Ltd. to maintain higher profitability than other domestic banks, along with a stable foundation for earnings, even amid harsh business conditions for Japan-based banks. We base this view on its risk management framework and record. To secure future earnings opportunities, the bank is likely to continue overseas lending within a certain proportion of total loans and continue efforts to grow noninterest income. The bank is likely to maintain a certain level of capital buffer against a rise in risk assets or a fall in profitability over the next two years. Its risk-adjusted capital (RAC) ratio is likely to slide gradually as risk assets increase faster than capital accumulation. However, the ratio will likely remain about 7.5%-8.0%, in our view. Aozora Bank's exposure to areas that are highly susceptible to economic and market conditions will remain a risk factor. The Bank's domestic and overseas nonrecourse real estate loans and corporate loans in North America account...

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