Norinchukin Bank outlook negative amidst rising unrealized losses: Moody’s

The losses should reverse in 2024 as interest rates begin to decline, the ratings agency said.

Norinchukin Bank has seen a significant decline in its Common Equity Tier 1 (CET1) ratio amidst increases in unrealized losses on its investment portfolio, reports Moody’s Japan K.K. As a result, the ratings agency has changed its outlook for Norinchukin Bank from stable to negative.

CET1 ratio declined to 14.02% at the end of September 2023, compared with 17.82% at the end of March 2023.

Norinchukin's capital has also notedly become more volatile over the past 12 months because of rapid changes in global interest rates, Moody’s added.

The bank’s unrealized losses on bonds of available-for-sales securities and other money held in trust increased to JPY2.9t as of the end of September, from JPY1.7t at the end of March 2023, repotedly due to a further increase in interest rates in the US and Europe. 

Unrealized losses on its held-to-maturity securities were about JPY0.3t as of the end of September, which is small compared to the bank's capital, Moody’s said.

“Moody's expects part of the unrealized losses to reverse in 2024 as global interest rates start to decline. Nevertheless, higher-for-longer interest rates expose the bank to continued volatility in its financial performance, limiting its buffers for absorbing unexpected losses,” the ratings agency said.