Standard & Poor's Thursday cut its long-term counterparty credit rating on Chiba Bank Ltd. to BBB-plus from A-minus. The outlook on the company's long-term rating is negative.
Separately, the ratings agency also placed the long- and short-term debt and counterparty ratings of Long-Term Credit Bank of Japan Ltd. and its related entities on the CreditWatch list with negative implications.
S&P said its downgrade of Chiba Bank reflects the company's worsening asset quality and the expectation that high credit costs over the medium term will continue to pressure financial performance.
Chiba Bank has been hit by the sharp decline of land prices in the Tokyo metropolitan area, S&P said. Its asset-quality problems largely reflect a high level of corporate bankruptcies and declining collateral values. "The exposures to vulnerable borrowers in the construction and real estate sectors could become actual credit losses," S&P said.
The bank publicly disclosed problem loans of $1.29 billion, or 3.1% of total loans, on March 31. The bank's reserves for problem loans have improved as a result of accelerated provisioning, S&P said, but more provisioning will likely be needed.