Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Thematic (Sector/Industry)

Deposit growth at the 112 banks that are members of the Japanese Bankers Association (JBA) came to +9.7% YoY in December 2020: the highest YoY growth level ever recorded, surpassing the previous record of +9.5% YoY growth rate set back in August and far exceeding the banks’ aggregate loan growth which declined in December 2020 to just +5.3% YoY.  This represented the 171st consecutive month of YoY deposit growth for all JBA member banks.  Banks have more money than they know what to do with, and not nearly enough borrowers to lend to.Taking a closer look at the data, major bank deposit balances have actually fallen in five of the last six months (November being the exception). In contrast to the major banks, deposit balances at both the regional and secondary regional banks continue to grow markedly, +8.9% YoY (a new all-time record) and +8.6% YoY (2nd-highest YoY growth rate ever), respectively.  Unsurprisingly, their loan-to-deposit ratios (LDRs) continue to deteriorate rapidly, although nowhere near the average LDR of the major banks which is now down to 51.4%.‘Profitless prosperity’ remains an ongoing reality for Japan’s banks: awash in cash, margins under relentless pressure and struggling to avoid yet another year of shareholder disappointment through further profits decline.  Some small local banks are already forecasting consolidated net losses for FY3/2021 that have little to do with the adverse economic impact of COVID-19 per se but reflect the difficult operating conditions for all Japanese banks in an ongoing near-zero interest rate environment.“Caveat Emptor!”  (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for 2021 and beyond.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/185/011/original/8300-WR-JBanks-2021-0126-EbbTide+TPNBNKvsTPX+in+2020.jpg?1611797731" class="editor-image img-responsive" data-smartkarma-image-id="185011"></figure></section>

Deposit growth at the 112 banks that are members of the Japanese Bankers Association (JBA) came to +9.7% YoY in December 2020: the highest YoY growth level ever recorded, surpassing the previous record of +9.5% YoY growth rate set back in August and far exceeding the banks’ aggregate loan growth which declined in December 2020 to just +5.3% YoY.  This represented the 171st consecutive month of YoY deposit growth for all JBA member banks.  Banks have more money than they know what to do with, and not nearly enough borrowers to lend to.Taking a closer look at the data, major bank deposit balances have actually fallen in five of the last six months (November being the exception). In contrast to the major banks, deposit balances at both the regional and secondary regional banks continue to grow markedly, +8.9% YoY (a new all-time record) and +8.6% YoY (2nd-highest YoY growth rate ever), respectively.  Unsurprisingly, their loan-to-deposit ratios (LDRs) continue to deteriorate rapidly, although nowhere near the average LDR of the major banks which is now down to 51.4%.‘Profitless prosperity’ remains an ongoing reality for Japan’s banks: awash in cash, margins under relentless pressure and struggling to avoid yet another year of shareholder disappointment through further profits decline.  Some small local banks are already forecasting consolidated net losses for FY3/2021 that have little to do with the adverse economic impact of COVID-19 per se but reflect the difficult operating conditions for all Japanese banks in an ongoing near-zero interest rate environment.“Caveat Emptor!”  (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for 2021 and beyond.

Japanese Banks:  Buddy, Can We Spare You a Dime !

The latest data from both the Bank of Japan (BoJ) and the Japanese Bankers Association (JBA) confirm the trend that we noted in earlier Smartkarma Insights on Japanese bank lending, namely that lending by the major banks continues to decline in terms of the outstanding loan balance since reaching a peak in June, even though YoY growth rates remain high compared to previous years.Total loan outstandings have fallen in five of the last six months (November being the exception), primarily because of declining loan balances at the major banks.  The declaration of a State of Emergency in several prefectures, as Japan continues to battle a surge in coronavirus infections, is unlikely to change this trend significantly.  However, as noted in other recent Smartkarma Insights on the outlook for the Japanese banking sector in 2021, these are loans, not grants, and will need either to be repaid in full or, if that becomes impossible, be declared as ‘value impaired’ by the lending banks and properly reserved against.“Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for 2021 and beyond.

The latest data from both the Bank of Japan (BoJ) and the Japanese Bankers Association (JBA) confirm the trend that we noted in earlier Smartkarma Insights on Japanese bank lending, namely that lending by the major banks continues to decline in terms of the outstanding loan balance since reaching a peak in June, even though YoY growth rates remain high compared to previous years.Total loan outstandings have fallen in five of the last six months (November being the exception), primarily because of declining loan balances at the major banks.  The declaration of a State of Emergency in several prefectures, as Japan continues to battle a surge in coronavirus infections, is unlikely to change this trend significantly.  However, as noted in other recent Smartkarma Insights on the outlook for the Japanese banking sector in 2021, these are loans, not grants, and will need either to be repaid in full or, if that becomes impossible, be declared as ‘value impaired’ by the lending banks and properly reserved against.“Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for 2021 and beyond.

Japanese Bank Lending: An Ebb Tide in 2021?

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

On Friday after the close, the TSE belatedly released its annual TSE Free Float Weight adjustments for stocks with fiscal year ends in March. Normally this comes out in October, and is executed at the end of October, but for the 2020 Free Float Weight Rebalance, as per an announcement made by the TSE on 22 June 2020, special measures were taken in light of the covid-19 pandemic, and the rebalance was delayed by 3 months. 
There are no major surprises that I see. Some buybacks from the market have led to slightly lower FFW coefficients. Some secondary offerings have led to increases in FFW coefficients. As discussed in <a href="https://www.smartkarma.com/insights/japan-post-insurance-update-three-reasons-to-buy-any-overhang-slightly-higher" target="_blank" data-smartkarma-citation="insights:46862" rel="noopener">Japan Post Insurance Update - Three Reasons To Buy. Any Overhang Slightly Higher</a> on Friday, one of the big names to the buy side is indeed <a href="https://www.smartkarma.com/entities/japan-post-insurance-co-ltd" target="_blank" data-smartkarma-citation="entities:840:1" rel="noopener">Japan Post Insurance (7181 JP)</a>.
For more on the rebalance, read on.
[A spreadsheet of all names and impacts is attached at the bottom of the insight]

On Friday after the close, the TSE belatedly released its annual TSE Free Float Weight adjustments for stocks with fiscal year ends in March. Normally this comes out in October, and is executed at the end of October, but for the 2020 Free Float Weight Rebalance, as per an announcement made by the TSE on 22 June 2020, special measures were taken in light of the covid-19 pandemic, and the rebalance was delayed by 3 months. 
There are no major surprises that I see. Some buybacks from the market have led to slightly lower FFW coefficients. Some secondary offerings have led to increases in FFW coefficients. As discussed in Japan Post Insurance Update - Three Reasons To Buy. Any Overhang Slightly Higher on Friday, one of the big names to the buy side is indeed Japan Post Insurance (7181 JP).
For more on the rebalance, read on.
[A spreadsheet of all names and impacts is attached at the bottom of the insight]

The Delayed TOPIX FFW Rebalance: $32bn To Trade

Coming just two months after the FSC had rejected a proposal by Thai tycoon Charoen Pokphand's holding company to purchase the 24.09% stake in <a href="https://www.smartkarma.com/entities/jih-sun-financial-holdings" target="_blank" data-smartkarma-citation="entities:17971:1" rel="noopener">Jih Sun Financial (5820 TT)</a> held by Hong Kong-based Capital Target Limited, it initially looked to me like the <a href="https://www.smartkarma.com/entities/fubon-financial-holding-co" target="_blank" data-smartkarma-citation="entities:11869:1" rel="noopener">Fubon Financial Holding Co (2881 TT)</a> announcement of a low-premium Tender Offer at NT$13/share to purchase Jih Sun Financial, which camecomplete with regulator pre-approval, was likely wrapped up as a nice package to get Shinsei and Capital Target out without requiring other minorities to sell.  A couple of days afterwards, Fubon noted that it had not made any contact with either of  <a href="https://www.smartkarma.com/entities/shinsei-bank-ltd" target="_blank" data-smartkarma-citation="entities:16897:1" rel="noopener">Shinsei Bank (8303 JP)</a> or Hong Kong-based Capital Target Limited prior to making the offer, but noted that it had wanted to purchase Jih Sun to raise its market share of Taiwanese stock market turnover (from 5.54% to 9.13% by adding Jih Sun's 3.59%). It noted that it would issue new shares - 60% common shares and 40% preferred shares - in order to finance the acquisition.Yesterday, Jih Sun announced the result of its board consideration of the Offer after having obtained the requisite fairness opinions required by Article 14 of the Regulations Governing Public Tender Offers for Securities of Public Companies.Jih Sun noted that it had not discussed the Tender Offer with Fubon prior to Fubon making its offer, and also noted that the accounting firms which had been engaged to provide fair value opinions found that a fair value per share estimated range was NT$13.89-15.71/share, and when looking at the "market price method", the other accountant had suggested the range NT$9.63-16.93/share against the NT$13 Offer. Several days after the announcement of the Offer, the Financial Supervisory Commission noted in response to legislator questions that the FSC was investigating the nature of the spike in share price and volume before the Tender Offer announcement, noting that the FSC itself and its personnel had kept quiet about the deal since October when they started looking at it. The news around this situation suggests my analysis of who owned Capital Target Limited may have been wrong - that a different originally offshore Chinese person may be (or have been) the controller of Capital Target Limited.This makes things a bit weirder.

Coming just two months after the FSC had rejected a proposal by Thai tycoon Charoen Pokphand's holding company to purchase the 24.09% stake in Jih Sun Financial (5820 TT) held by Hong Kong-based Capital Target Limited, it initially looked to me like the Fubon Financial Holding Co (2881 TT) announcement of a low-premium Tender Offer at NT$13/share to purchase Jih Sun Financial, which camecomplete with regulator pre-approval, was likely wrapped up as a nice package to get Shinsei and Capital Target out without requiring other minorities to sell.  A couple of days afterwards, Fubon noted that it had not made any contact with either of  Shinsei Bank (8303 JP) or Hong Kong-based Capital Target Limited prior to making the offer, but noted that it had wanted to purchase Jih Sun to raise its market share of Taiwanese stock market turnover (from 5.54% to 9.13% by adding Jih Sun's 3.59%). It noted that it would issue new shares - 60% common shares and 40% preferred shares - in order to finance the acquisition.Yesterday, Jih Sun announced the result of its board consideration of the Offer after having obtained the requisite fairness opinions required by Article 14 of the Regulations Governing Public Tender Offers for Securities of Public Companies.Jih Sun noted that it had not discussed the Tender Offer with Fubon prior to Fubon making its offer, and also noted that the accounting firms which had been engaged to provide fair value opinions found that a fair value per share estimated range was NT$13.89-15.71/share, and when looking at the "market price method", the other accountant had suggested the range NT$9.63-16.93/share against the NT$13 Offer. Several days after the announcement of the Offer, the Financial Supervisory Commission noted in response to legislator questions that the FSC was investigating the nature of the spike in share price and volume before the Tender Offer announcement, noting that the FSC itself and its personnel had kept quiet about the deal since October when they started looking at it. The news around this situation suggests my analysis of who owned Capital Target Limited may have been wrong - that a different originally offshore Chinese person may be (or have been) the controller of Capital Target Limited.This makes things a bit weirder. 

Fubon Financial Offer for Jih Sun Gets Even Weirder

David Blennerhassett

Last Week in Event SPACE: Shinsei Bank, Huifu Payment, Vedanta, Cardinal Resources, Jih Sun Finance

Japan

SBI Shinsei Bank, Ltd. provides banking services including deposits, loans, and foreign exchange transaction, as well as investment trust service and issuance of long-term bonds.

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SBI Shinsei Bank (8303 JP)

Japanese Banks: Buddy, Can We Spare You a Dime !

Cash continues to flow into bank deposits in Japan faster than the banks appear able to channel those funds into loans or investments that might...

J. Brian Waterhouse

Japanese Bank Lending: An Ebb Tide in 2021?

The ‘dash for cash’ by large corporates appears to be over, at least in terms of lending by the major banks. Only the small secondary regionals...

J. Brian Waterhouse

The Delayed TOPIX FFW Rebalance: $32bn To Trade

The Big Annual TOPIX FFW Rebalance of October 2020 was delayed until January. The results were not terribly surprising. Nevertheless, it is a big...

Travis Lundy

Fubon Financial Offer for Jih Sun Gets Even Weirder

Fubon said they hadn't communicated with the two main holders, but would. Now Jih Sun says accountants say the bid may be light, but Jih Sun puts...

Travis Lundy

Last Week in Event SPACE: Shinsei Bank, Huifu Payment, Vedanta, Cardinal Resources, Jih Sun Finance

The weekend is upon us - pour yourself some coffee (or mulled wine) and sift through a brief summary of insights on various events discussed during...

David Blennerhassett

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