Business Context and Reporting Period
This Form 6-K filing by Mizuho Financial Group, Inc. (Mizuho) discloses Basel Pillar 3 regulatory capital and liquidity information for the fiscal year ended March 31, 2017. The report was filed on July 28, 2017. The data reflects the consolidated financial position of Mizuho and its major subsidiaries, including Mizuho Bank, Ltd., Mizuho Trust & Banking Co., Ltd., and Mizuho Securities Co., Ltd. The filing focuses on capital adequacy, risk-weighted assets, liquidity coverage, and risk management frameworks rather than standard GAAP revenue and profit metrics.
Key Financial Metrics (Capital and Risk)
Capital Adequacy (Consolidated as of March 31, 2017)
- Total Capital Ratio: 16.28% (International Standard)
- Tier 1 Capital Ratio: 13.30%
- Common Equity Tier 1 (CET1) Ratio: 11.34%
- Total Capital: 10,050.9 billion yen
- Tier 1 Capital: 8,211.5 billion yen
- CET1 Capital: 7,001.6 billion yen
Risk-Weighted Assets (RWA)
- Total RWA: 61,717.1 billion yen
- Credit Risk RWA: 56,060.0 billion yen
- Market Risk RWA: 2,282.8 billion yen
- Operational Risk RWA: 3,374.2 billion yen
Liquidity
- Liquidity Coverage Ratio (LCR): 129.4% (Average for the three months ended March 31, 2017)
- High-Quality Liquid Assets (HQLA): 59,034.7 billion yen
- Net Cash Outflows: 45,611.6 billion yen
Leverage Ratio
- Consolidated Leverage Ratio: 3.95%
- Total Exposures: 207,401.7 billion yen
Material Changes vs. Prior Period
Comparing the fiscal year ended March 31, 2017, to March 31, 2016:
- Capital Strength: All capital ratios improved. The Total Capital Ratio increased from 15.41% to 16.28%, and the CET1 ratio rose from 10.50% to 11.34%.
- Capital Base: Total capital increased by approximately 412 billion yen (from 9,638.6 to 10,050.9 billion yen), driven by an increase in retained earnings and Common Equity Tier 1 capital.
- Risk-Weighted Assets: Total RWA decreased by approximately 814 billion yen (from 62,531.1 to 61,717.1 billion yen). This reduction was primarily due to changes in the Exposure at Default (EAD) calculation method for derivative transactions, despite an increase in Market Risk RWA.
- Actual Losses: Total actual losses turned negative (a net gain) at -4.9 billion yen for the fiscal year ended March 31, 2017, compared to positive losses of 17.4 billion yen in the prior year. This was largely due to a significant decrease in losses from corporate exposure.
- Liquidity: The LCR decreased slightly from 135.3% (Q4 2016) to 129.4% (Q1 2017) but remains well above the 100% regulatory minimum.
Outlook, Risks, and Management Commentary
Capital Management
Mizuho maintains a high level of financial soundness, confirming that risk-based capital is adequate relative to business plans and strategic targets. The group utilizes a framework for allocating risk capital to principal banking subsidiaries to ensure risks remain within the group's capacity.
Risk Management
- Credit Risk: The group applies the Advanced Internal Ratings-Based Approach (IRB) for credit risk. Credit risk exposure is diversified across domestic and overseas markets, with significant exposure to the Japanese Government and Bank of Japan. Exposure past due three months or more totaled 1,336.9 billion yen.
- Market Risk: Value-at-Risk (VaR) for trading activities averaged 2.7 billion yen for the fiscal year ended March 31, 2017. Stressed VaR averaged 5.2 billion yen. The group reported zero instances where actual losses exceeded the VaR during the period.
- Operational Risk: The group uses the Advanced Measurement Approach (AMA) to calculate operational risk capital. Operational risk RWA increased slightly to 3,374.2 billion yen.
- Liquidity Risk: Mizuho maintains a robust liquidity position with no significant currency mismatches. The group monitors Early Warning Indicators (EWIs) and maintains a contingency funding plan for "Anxious" or "Crisis" scenarios.
Outlier Criteria
Under the Basel III outlier framework, the loss ratio to broadly-defined capital was 3.5% as of March 31, 2017, well below the 20% threshold, indicating the group is not classified as an outlier.
Key Facts for Investor Verification
- Capital Ratios: Verify that the CET1 ratio of 11.34% and Total Capital ratio of 16.28% meet or exceed the group's internal targets and regulatory minimums including capital buffers.
- RWA Reduction Drivers: Confirm the specific impact of the EAD calculation method change for derivatives on the reduction of Risk-Weighted Assets.
- Asset Quality: Review the composition of the 1,336.9 billion yen in exposure past due three months or more, specifically the increase in manufacturing sector exposure.
- Liquidity Buffer: Assess the sustainability of the 129.4% LCR given the increase in net cash outflows to 45.6 trillion yen.
- Securitization Exposure: Note the significant increase in synthetic securitization exposure as an originator (from 70.6 billion yen to 280.9 billion yen) and the associated risk weights.