21-D-1371
February 24, 2022

Japan Credit Rating Agency, Ltd. (JCR) announces the following credit rating.

THE ASAHI SHINKIN BANK (security code: -)<Assignment>
Long-term Issuer Rating: AOutlook:
StableShort-term Issuer Rating: J-1

Rationale(1) THE ASAHI SHINKIN BANK (the “Bank”) is a shinkin bank headquartered in Taito Ward, Tokyo withfund volume of 2.1 trillion yen. While there are many business opportunities in Tokyo, competition
among financial institutions is fierce. Even so, the Bank has decent share for deposits and loans inTaito and Edogawa wards, its primary sales areas. Factors reflected in the ratings include goodbusiness base and capital adequacy, sufficient coverage for loan assets and relatively high earnings
capacity.
(2) Core net business income (excluding gains/losses on cancellation of investment trusts; the same
applies hereinafter) surged in the fiscal year ended March 2021 (FY2020) and into the first half of
FY2021. Primary contributing factors here include a huge volume of COVID-related loans executed,
sharp rise in interest on loans and discounts resulting from nearly 30% increase in loan balance anddecrease in foreign currency financing costs with a drop in short-term foreign currency interest rates.
ROA based on core net business income has previously been in the 0.2% range but now stands
relatively high in the lower 0.4% range. JCR predicts that the Bank’s earnings capacity will decrease
gradually going forward as repayments are made on COVID-related loans. Also, as the Bank makes
large investment in foreign currency-denominated bonds, attention must be paid to an increase inforeign currency financing costs in the event of a rise in short-term foreign currency interest rates.
That said, given, among others, that interest on loans and discounts was already growing steadily
from before the COVID crisis and that there is room for reducing expenses through digitalization andimprovement of work efficiency, the Bank will probably be able to maintain relatively high earnings
capacity for a while.
(3) Non-performing loans ratio disclosed under the Financial Reconstruction Act as of September 30,
2021 stood decent at 3%. While other assets requiring caution account for as much as over 30% ofgross credit exposure, coverage by guarantees, etc. is sufficient, making the uncovered amount small.
Moreover, the Bank makes conservative allowances, as indicated by the adoption of the cash flow
deduction method for some of potentially bankrupt debtors. Credit costs swelled in FY2019 andFY2020 because of the posting of large amount of exceptional provision to prepare for the default ofborrowers amid the COVID crisis but are otherwise well-controlled. They increased a bit in the firsthalf of FY2021 due to the reclassification of large borrowers into lower categories, but JCR assumes
that, given sufficient loan coverage, etc., they can be fully absorbed by core net business income.
(4) Partly because of a high loan-to-deposit ratio for a shinkin bank, securities-to-deposit ratio (based onaverage balance) is low in the lower 10% range. The Bank’s securities portfolio is characteristic inthat foreign currency-denominated bonds account for nearly 50%, but the amount of interest rate risk
in currencies including yen is not large relative to capital. Because of the fairly large outstandingbalance of business bonds, stock and REITs, credit risk and price fluctuation risk are slightly high.
Yet, the Bank does not intend to accelerate risk-taking, and JCR thus assumes that risk amount will
not be excessive in the future, either.
(5) Capital adequacy is at a level commensurate with the rating. Non-consolidated core capital ratio
adjusted for reserves for possible loan losses as of September 30, 2021 was in the higher 8% range,
which is comparable, by and large, to that of other regional financial institutions in JCR’s “A-” rating
category. Given also the exceptional provision for COVID responses, the Bank secures a reasonablelevel of a risk buffer. Assuming that core net business income will stay at a higher level than before
for a while and credit costs will not weigh on heavily on profits, JCR assumes that internal reserves
will accumulate fairly rapidly going forward. Also, as the increase in risk assets associated with loans
and securities investment will probably be not so large, JCR views that core capital ratio will most
likely be on an uptrend.
Kengo Sakaguchi, Ippei Koga
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Copyright © Japan Credit Rating Agency, Ltd. All Rights Reserved.

RatingIssuer: THE ASAHI SHINKIN BANK<Assignment>
Long-term Issuer Rating: AShort-term Issuer Rating: J-1

Outlook: Stable

Rating Assignment Date: February 21, 2022
The assumptions for the credit ratings and the definitions of the rating symbols are published as "Types of Credit Ratings and Definitionsof Rating Symbols" (January 6, 2014) in Information about JCR Ratings on JCR's website (https://www.jcr.co.jp/en/).
Outline of the rating methodology is shown as "JCR's Rating Methodology" (November 7, 2014) and "Banks" (October 1, 2021)
in Information about JCR Ratings on JCR's website (https://www.jcr.co.jp/en/).

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2/2Copyright © Japan Credit Rating Agency, Ltd. All Rights Reserved.