Japanese mega banks' capital positions comparable to their global peers

But their liquidity positions are stronger.

According to Moody's, the capital positions of the Japanese mega-banks improved significantly in FYE3/2010 and FYE3/2011, owing to large issuances – JPY4.5 trillion in total – of common stock during 2008–2010 and earnings accumulation.

Here's more from Moody's:

Their capital positions are comparable to those of their global peers, while their liquidity positions are much stronger.

Global comparisons of BIS capital ratios are not strictly like-for-like comparisons because of variations in the calculations of risk-weighted assets (RWA), both within countries and across countries.

Banks with low RWA/total assets ratios use more leverage in their operations than those with higher ratios. With this metric, Japanese banks are seen as mid range, although -- if we exclude JGB, which carry a risk weight of zero -- their position improves substantially, providing comfort that they are not aggressively optimizing capital through risk-weight mitigation.

The three mega-banks will need to comply with Basel III capital regulations, which will be introduced in FYE3/2013. All three institutions are currently classified as global systemically important banks (GSIBs) and are subject to potential additional capital surcharges.

Based on the relevant capital measures, we note that the common equity Tier 1 (CET1) ratios of SMFG and Mizuho as of end-September 2012 are below 8%, the minimum required level from end-March 2019 (7 percentage points + potential additional capital surcharge of 1 percentage point, on a Basel III fully loaded basis). However, we expect that they will meet the required level by maintaining their current pace of earnings accumulation.