KEY RATING DRIVERS
The subordinated notes are rated one notch below the bank's National Long-Term Rating to reflect their higher loss-severity risk compared with senior unsecured instruments. There is a non-viability trigger for loss-absorption (defined as emergency capital assistance from an empowered government agency), with a partial rather than a mandatory full write-down. The notes do not have going-concern loss-absorption features (i.e. prior to non-viability), and hence there is no additional notching for non-performance risk.
BAY's National Long-Term Rating is driven by institutional support from the parent MUFG Bank, Ltd. (A/Stable/a) of Japan. Fitch views that BAY is a strategically important subsidiary of MUFG Bank, which owns 76.9% of the BAY and exercises management control.
RATING SENSITIVITIES
The rating on the notes is sensitive to changes in the bank's National Long-Term Rating. There is no upside to BAY's National Long-Term Rating, as it is already at the top end of the scale.
A downgrade of MUFG Bank's Long-Term Issuer Default Rating could lead to negative rating action on BAY's National Long-Term Rating. BAY's ratings could also be negatively impacted if MUFG Bank shows a reduced propensity to support BAY. However, Fitch believes this is unlikely to occur in the medium term.
For full details of BAY's key rating drivers and sensitivities, see the previous rating action commentary, published 12 April 2019.