- Shinsei Bank, Limited (Shinsei, long-term bank deposit ratings Ba1; standalone credit strength D-/ba3),

- Shinsei Finance (Cayman) Limited, and

- Shinsei Finance II (Cayman) Limited.

The change in the outlook reflects Moody's view that additional large losses from the bank's current exposures are unlikely and our expectation that the rate of decline in asset balances should start to slow.

Following an increase in provisions in FYE3/2012 for grey-zone interest repayments in its consumer finance business, Moody's considers that the need for significant additional provisioning is unlikely because of the declining trend in the number of claims for excess interest repayment, a common trend across all major consumer finance companies.

In another sign of asset quality improvement, non-recurring credit costs from Shinsei's domestic real estate non-recourse finance business more than halved to JPY8 billion in FYE3/2012 from JPY19.5 billion in FYE3/2011.

Given the bank's success in increased coverage ratios in both these businesses, additional large losses from these areas are unlikely. As a result, Moody's expects that the bank can achieve a modest increase in earnings in the current fiscal year and that there will be no immediate pressure on its capital. In this context, we expect continued improvement in the Tier 1 ratio, which has improved to 8.8% at March 31, 2012 compared to 6.4% two years earlier due to capital raising, earnings retention and reductions in risk-weighted assets.

However, Shinsei Bank's credit profile remains weak compared to other Japanese banks, partly due to the structural challenge it faces in having a higher cost funding profile compared to major banks and most regional banks which have more stable funding bases. Upward ratings pressure in the next one to two years is unlikely, in view of the still weak top-line earnings generation capacity, the result both of its disposal of non-core assets, as well as the continued decline in the balance of consumer loans outstanding.

At the same time, Moody's understands that Shinsei's large consumer finance business is one of the few areas in which the bank still has competitive advantages.

Looking ahead, Moody's considers that increasing loan balances in the consumer finance business -- without raising credit expenses -- is the only way for Shinsei to enhance profits from this sector. Although the rate of decline should start to slow, a return to growth remains a longer-term project.

Upward ratings pressure will require the stabilization of revenue and profits through the establishment of a sustainable business model -- including the stabilization of its assets balances -- with contributions particularly from its consumer finance business. Given that stabilization in asset balances remains some quarters in the future, upward pressure is unlikely within the next one to two years.

Downward rating pressure would come from a failure to establish and expand its consumer finance business with stable and sufficient profitability, the emergence of a bottom-line annual loss, a return to higher risk -- higher return business segments (including overseas) where the bank lacks clear competitive advantages, and a downgrade of the Japan sovereign rating.

Please see ratings tab on the issuer/entity page on the Moody's website for the last rating action and the rating history.

The principal methodologies used in this rating were Moody's Bank Financial Strength Ratings: Global Methodology, published on September 30, 2010, and Incorporation of Joint-Default Analysis into Moody's Bank Ratings: Global Methodology, published on April 9, 2012, and available on www.moodys.co.jp.

Shinsei Bank, Limited, headquartered in Tokyo, had consolidated total assets of approximately JPY8.6 trillion as of March 31, 2012.

Kyosuke KajiAsst Vice President - Analyst Financial Institutions Group Moody's Japan K.K. Atago Green Hills Mori Tower 20fl 2-5-1 Atago, Minato-ku Tokyo 105-6220 Japan JOURNALISTS: (03) 5408-4110 SUBSCRIBERS: (03) 5408-4100 Stephen Long MD - Financial Institutions Financial Institutions Group JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 Releasing Office: Moody's Japan K.K. Atago Green Hills Mori Tower 20fl 2-5-1 Atago, Minato-ku Tokyo 105-6220 Japan JOURNALISTS: (03) 5408-4110 SUBSCRIBERS: (03) 5408-4100 Copyright 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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