Business Context and Reporting Period
This Form 6-K filing by Mizuho Financial Group, Inc. (Mizuho) discloses Basel Pillar 3 regulatory capital and liquidity data. The primary reporting period covers the consolidated financial position as of September 30, 2017, with comparative data provided for September 30, 2016. The filing was submitted on January 30, 2018. The data applies to Mizuho Financial Group, Inc. and its consolidated subsidiaries, including Mizuho Bank, Ltd., Mizuho Trust & Banking Co., Ltd., and Mizuho Securities Co., Ltd.
Key Financial Metrics
Capital Adequacy (Consolidated)
| Metric | Sept 30, 2016 | Sept 30, 2017 |
|---|---|---|
| Total Capital Ratio | 15.84% | 17.74% |
| Tier 1 Capital Ratio | 12.94% | 14.59% |
| Common Equity Tier 1 (CET1) Ratio | 10.98% | 11.80% |
| Total Capital (Billions of Yen) | 9,767.8 | 10,946.6 |
| Tier 1 Capital (Billions of Yen) | 7,982.5 | 9,004.8 |
| CET1 Capital (Billions of Yen) | 6,769.3 | 7,280.5 |
| Risk-Weighted Assets (Billions of Yen) | 61,648.4 | 61,695.5 |
Liquidity and Leverage
- Liquidity Coverage Ratio (LCR): The quarterly average LCR for the three months ended September 30, 2017, was 126.1%, down from 129.7% in the prior quarter. This remains above the 100% regulatory minimum.
- Leverage Ratio: The consolidated leverage ratio increased from 4.05% (Sept 2016) to 4.14% (Sept 2017).
- Major Liquid Assets: Total major liquid assets (after deducting pledged portions) increased to 75,250.4 billion yen as of September 30, 2017, from 69,293.3 billion yen as of March 31, 2017.
Market Risk
- Value at Risk (VaR): The end-of-period VaR for the six months ended September 30, 2017, was 2.7 billion yen. No instances of losses exceeding VaR were recorded during this period.
- Stressed VaR: The end-of-period Stressed VaR was 4.6 billion yen.
Material Changes vs. Prior Period
- Capital Strength: All capital ratios (Total, Tier 1, and CET1) improved significantly year-over-year, driven by an increase in total capital of approximately 1.18 trillion yen.
- Risk-Weighted Assets (RWA): RWA remained relatively stable, increasing slightly by 47.1 billion yen to 61.7 trillion yen. The filing notes that decreases in RWA due to changes in measurement methods for derivatives and fund transactions were offset by increases in stock prices.
- Actual Losses: Total actual losses turned negative (indicating a net release of provisions or gains) to -98.6 billion yen for the period ended September 30, 2017, a significant improvement from 7.9 billion yen in the prior year. This was primarily due to a significant decrease in losses from corporate exposure.
- Exposure Composition: Credit risk exposure to the Japanese Government and Bank of Japan decreased slightly, while exposure to the corporate sector increased. Overseas credit risk exposure increased from 54.9 trillion yen to 58.6 trillion yen.
Outlook, Risks, and Commentary
- Liquidity Outlook: Management states that the Consolidated LCR does not lead to any issues as it surpasses the minimum standard. They do not expect the LCR to deviate significantly from current levels in the future.
- Asset Quality: The reduction in actual losses suggests an improvement in asset quality, particularly within the corporate portfolio. Specific reserves for possible losses on loans decreased to 146.4 billion yen from 153.5 billion yen.
- Regulatory Compliance: The group continues to apply the advanced internal ratings-based approach for credit risk and the advanced measurement approach for operational risk. The filing confirms no subsidiaries were deficient in regulatory capital.
- Outlier Criteria: The loss ratio to capital under the outlier criteria (interest rate shock scenario) was 3.7% as of September 30, 2017, well below the 20% threshold that would trigger outlier status.
Key Facts for Investor Verification
- Capital Ratios: Verify the sustained improvement in CET1 ratio (11.80%) and Total Capital ratio (17.74%) against peer banks and regulatory minimums.
- LCR Trend: Monitor the slight decline in the Liquidity Coverage Ratio (126.1%) to ensure it remains comfortably above the 100% threshold in subsequent quarters.
- Loss Reversals: Investigate the drivers behind the negative actual losses (-98.6 billion yen) to determine if this is a sustainable trend or a one-time release of provisions.
- RWA Stability: Confirm that the stability in Risk-Weighted Assets is not masking underlying credit quality deterioration in specific sectors, particularly given the increase in overseas exposure.
- Securitization Exposure: Review the increase in synthetic securitization exposure (from 29.0 billion yen to 373.9 billion yen) and its impact on capital requirements.