U.S. Markets closed

HSBC Bank (China) Company Limited -- Moody's places HSBC Bank (China) on review for downgrade; affirms Hang Seng Bank (China)'s deposit ratings with stable outlook

·22 min read
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Rating Action: Moody's places HSBC Bank (China) on review for downgrade; affirms Hang Seng Bank (China)'s deposit ratings with stable outlookGlobal Credit Research - 10 Mar 2021 Hong Kong, March 10, 2021 -- Moody's Investors Service has placed HSBC Bank (China) Company Limited's (HSBC China) A1 long-term deposit ratings, A1 long-term issuer ratings, and a1 Adjusted baseline credit assessment (BCA) on review for downgrade. Moody's has also placed HSBC China's Aa3(cr) counterparty risk assessment (CRA) and Aa3 counterparty risk ratings (CRRs) on review for downgrade. At the same time, Moody's has affirmed HSBC China's baa1 BCA and its short-term ratings and assessment. In addition, Moody's has affirmed Hang Seng Bank (China) Limited's (HSB China) long-term deposit ratings at A2 with a stable outlook. Moody's has also affirmed HSB China's BCA at baa3 and Adjusted BCA at a2, as well as affirmed all of the bank's other ratings and assessments. The outlook on HSB China is stable.A full list of affected ratings can be found at the end of the press release. RATINGS RATIONALE HSBC China The review for downgrade for HSBC China (except its BCA and short-term ratings and assessment) follows the rating action on its immediate parent, The Hongkong and Shanghai Banking Corporation Limited (HSBC HK, deposits Aa2 RUR Down, a1 RUR Down) on 9 March, in which Moody's placed HSBC HK's long-term deposit ratings, BCA and Adjusted BCA on review for downgrade. For details of that rating action, please see the press release: https://www.moodys.com/research/Moodys-places-The-Hongkong-and-Shanghai-Banking-Corp-and-Hang--PR_441978. HSBC China's Adjusted BCA, long-term issuer and deposit ratings are aligned with HSBC HK's BCA and incorporate multiple notches of uplift based on Moody's assessment of a very high level of affiliate support from HSBC HK in times of need. The very high level of affiliate support from HSBC HK reflects the fact that HSBC China is a wholly owned subsidiary of HSBC HK and plays a key role in HSBC HK and HSBC group's business expansion in mainland China. HSBC China has benefited from the group's brand name in China and substantial operational support. The affirmation of HSBC China's baa1 BCA reflects its sound asset quality and prudent risk management, strong capitalization, and adequate liquidity that is offset by profitability pressures. The bank is largely funded by customer deposits despite its relatively small deposit franchise, and has good access to interbank funding from HSBC HK when needed. Moody's expects HSBC China's asset quality to remain better than rated Chinese peers, despite China's uneven economic recovery from the pandemic. This is underpinned by the bank's (1) prudent risk management; (2) strong customer base with a focus on large multinational companies, select state-owned enterprises (SOEs) and affluent retail customers; and (3) strong buffer against asset risks with a high loan loss coverage ratio. The bank, however, has relatively high credit concentration to large borrowers compared with China's state-owned banks. HSBC China's capital level will also remain one of the strongest among the Chinese banks that Moody's rate. As of the end of September 2020, the bank's reported Common Equity Tier 1 (CET1) ratio and total capital adequacy ratio were 16.2% and 17.0%, respectively. Moody's expects HSBC China's profitability to be strained over the next 12-18 months due to pressure on net interest margins amid a low interest environment. Its operating costs will remain higher than rated Chinese peers' due to its further expansion and relatively small scale. China does not have an operational bank resolution regime. Therefore, Moody's applies a basic loss-given-failure (LGF) approach in rating Chinese banks' liabilities. Moody's preliminary rating assessment on HSBC China's deposits is in line with the bank's Adjusted BCA. HSBC China's CRA and CRR are positioned one notch higher than the Adjusted BCA. Because of HSBC China's small market share in China, Moody's does not factor in any support uplift from the Government of China (A1 stable) in HSBC China's issuer and deposit ratings, CRA and CRR.HSB China The affirmation of HSB China's ratings with a stable outlook follows the rating action on its immediate parent, Hang Seng Bank Limited (HSB, deposits Aa2 RUR Down, a1 RUR Down) on 9 March, in which Moody's placed HSB's long-term deposit ratings, BCA and Adjusted BCA on review for downgrade. For details of that rating action, please see the press release: https://www.moodys.com/research/Moodys-places-The-Hongkong-and-Shanghai-Banking-Corp-and-Hang--PR_441978. Moody's assesses that HSB China has a very high level of affiliate support from, and a very high level of dependence on, HSB. Moody's expects HSB China can maintain its a2 Adjusted BCA and A2 long-term issuer and deposit ratings even if there is a one notch downgrade in HSB's BCA to a2 from a1. The support assumption takes into account HSB China's strategic importance to HSB and HSBC group, and its strong integration with HSB, serving the banking needs of HSB's customers in China. HSB China is fully owned by HSB and carries the parent's name. It has received capital injections and funding support for its daily operations from HSB. The affirmation of HSB China's baa3 BCA reflects its strong capitalization, moderate profitability and stable interbank funding from the parent bank. On the other hand, we expect the bank's asset risk to be strained over the next 12-18 months . Its non-performing loan (NPL) ratio has increased to 1.05% as of end-2020, from 0.41% as of end-2019. Further, HSB China's loans to large and medium-size enterprises increase its credit concentration, and its fast loan growth will bring unseasoned risks for the bank. That said, its asset risk can be partly tempered by a high loan loss coverage ratio and strong customer base with a focus on large multinational companies and affluent retail customers. Moody's expects HSB China to maintain satisfactory capitalization, supported by its moderate internal capital generation capability and prudent growth in risk-weighted assets. The bank's total capital adequacy ratio and CET1 ratio were 14.6% and 13.4%, respectively, as of the end of 2020. Moody's believes HSB China's profitability will be under pressure due to narrowing net interest margins and elevated credit costs over the next 12-18 months. The bank has modest profitability compared with the system average because of (1) its heavy reliance on net interest income, (2) higher funding costs than those of most rated Chinese banks, as well as (3) relatively high operating costs. The bank will continue to improve its operating efficiency, which will alleviate the profitability pressure. China does not have an operational bank resolution regime. Therefore, Moody's apply a basic LGF approach in rating Chinese banks. Moody's preliminary rating assessment of HSB China's deposits is at the same level as the bank's Adjusted BCA. Because of HSB China's small market share in China, Moody's does not factor in any government support uplift in the bank's issuer and deposit ratings, CRA and CRR.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSHSBC China An upgrade in HSBC China's ratings is unlikely, given the ratings are placed on review for downgrade. The bank's ratings could be confirmed if the same happens for HSBC HK's ratings with its BCA remaining at a1, and HSBC China maintains its strong asset quality, profitability and capitalization. HSBC China's BCA could be upgraded if its (1) asset quality remains sound, with the problem loan ratio consistently below 0.5%; (2) capitalization strengthens, with its tangible common equity/risk weighted assets consistently above 14.0%; and (3) profitability improves, with its net income/tangible assets consistently above 1.0%. HSBC China's long-term issuer ratings and deposit ratings could be downgraded if its parent's BCA is downgraded. HSBC China's BCA could be downgraded if its (1) profitability weakens, with net income/tangible assets consistently below 0.55%; (2) capital position weakens, with tangible common equity/risk weighted assets consistently below 12.0%; (3) asset risk increases, with the NPL ratio consistently above 3.0%; or (4) it increases the reliance on market funds outside HSBC HK significantly. In addition, a significant weakening in the operating environment, due to for example, a moderation in China's economic growth or significant increase in corporate financial leverage, would also be negative for the bank's BCA. HSB China HSB China's A2 deposit ratings and a2 Adjusted BCA incorporate our assumption of a very high probability of affiliate support from its parent HSB. Upward pressure on HSB China's Adjusted BCA and deposit rating is unlikely, given the parent's BCA is placed on review for downgrade. HSB China's BCA could experience upward pressure if its (1) funding structure improves, with solid growth in core deposits; (2) profitability, as measured by the return on average assets, rises consistently to above 1.0%; or (3) asset quality improves, measured by an NPL ratio remaining below 0.5% consistently; or (4) capital adequacy increases further with tangible common equity/risk weighted assets consistently above 14.0%. HSB China's deposit rating could be downgraded if its parent's BCA is downgraded below a2. HSB China's BCA could experience downward pressure if its (1) funding structure deteriorates, as measured by market funds/tangible banking assets consistently above 40%; (2) asset quality weakens significantly, with the NPL ratio consistently over 3.0%; or (3) capital position weakens significantly, with the tangible common equity/risk weighted assets ratio dropping below 11% consistently. In addition, a significant weakening in the operating environment, due to for example, a moderation in China's economic growth or significant increase in corporate financial leverage, would also be negative for the bank's BCA. The principal methodology used in these ratings was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology. Headquartered in Shanghai, HSBC Bank (China) Company Limited reported total assets of RMB552.2 billion as of 30 June 2020.Headquartered in Shanghai, Hang Seng Bank (China) Limited reported total assets of RMB119.4 billion as of 31 December 2020.The local market analyst for HSBC China's ratings is Yulia Wan, +86 (21) 2057 4017.The local market analyst for HSB China's ratings is Yan Li, +86 (10) 6319 6561.LIST OF AFFECTED RATINGS/ASSESSMENTS..Issuer: HSBC Bank (China) Company LimitedOn Review for Downgrade:.... Adjusted Baseline Credit Assessment, Placed on Review for Downgrade, currently a1.... Long-term Counterparty Risk Assessment, Placed on Review for Downgrade, currently Aa3(cr).... Long-term Counterparty Risk Rating (Foreign and Local Currency), Placed on Review for Downgrade, currently Aa3.... Long-term Issuer Rating (Foreign and Local Currency), Placed on Review for Downgrade, currently A1, Outlook changed to Rating Under Review from Negative.....Long-term Deposit Rating (Foreign and Local Currency), Placed on Review for Downgrade, currently A1, Outlook changed to Rating Under Review from Negative....Outlook, Changed To Rating Under Review From NegativeAffirmations.... Baseline Credit Assessment, Affirmed baa1.... Short-term Counterparty Risk Assessment, Affirmed P-1(cr).... Short-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed P-1.... Short-term Issuer Rating (Foreign and Local Currency), Affirmed P-1.... Short-term Deposit Rating (Foreign and Local Currency), Affirmed P-1..Issuer: Hang Seng Bank (China) Limited Outlook Actions: ....Outlook, Remains Stable Affirmations: ..Issuer: Hang Seng Bank (China) Limited.... Adjusted Baseline Credit Assessment, Affirmed a2.... Baseline Credit Assessment, Affirmed baa3.... Long-term Counterparty Risk Assessment, Affirmed A1(cr).... Short-term Counterparty Risk Assessment, Affirmed P-1(cr).... Long-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed A1.... Short-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed P-1.... Long-term Issuer Rating (Foreign Currency), Affirmed A2, outlook remains stable.... Short-term Deposit Rating (Foreign and Local Currency), Affirmed P-1....Long-term Deposit Rating (Foreign and Local Currency), Affirmed A2, outlook remains stableREGULATORY DISCLOSURES For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004. For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com. For any affected securities or rated entities receiving direct credit support from the primary entity (ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity. The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com. Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entities are participating and the rated entities or their agent(s) generally provide Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities. Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review. Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406. The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com. The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com. Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating. Sonny Hsu, CFA VP - Senior Credit Officer Financial Institutions Group Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 Yat Man Sally Yim, CFA MD - Financial Institutions Financial Institutions Group JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 Releasing Office: Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. ​