Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Equity Bottom-Up

As we warned in our previous Smartkarma Insight on <a href="https://www.smartkarma.com/entities/hyakujushi-bank-ltd" target="_blank" data-smartkarma-citation="entities:20502:1" rel="noopener">Hyakujushi Bank (8386 JP)</a>, <a href="https://www.smartkarma.com/insights/hyakujushi-bank-8386-jp-in-the-stocks-with-investors" target="_blank" data-smartkarma-citation="insights:42773" rel="noopener">Hyakujushi Bank (8386 JP):  In the Stocks with Investors</a>, the bank has now had to issue a profit warning for both 1H FY3/2021 and FY3/2021, slashing its interim guidance from consolidated net profits of ¥2.3 billion to a consolidated net loss of ¥1.6 billion.  The bank has in addition lowered its full-year guidance by ¥3 billion to just ¥500 million: a reduction of 87.5%.  The problem is burgeoning valuation losses on securities. While the interim dividend of ¥40/share is being maintained despite the likely 1H loss, the final dividend has been cut from ¥40/share to ¥30/share.
Foreign investors continue to own around 11% of outstanding shares despite the bank’s long-standing structural issues, low efficiency, demanding valuations (FY3/2021 PER now exceeds 100x!) and continuing reliance on volatile non-core income sources to prop up flagging revenues.  Caveat emptor!  (May the Buyer Beware!)

As we warned in our previous Smartkarma Insight on Hyakujushi Bank (8386 JP), Hyakujushi Bank (8386 JP):  In the Stocks with Investors, the bank has now had to issue a profit warning for both 1H FY3/2021 and FY3/2021, slashing its interim guidance from consolidated net profits of ¥2.3 billion to a consolidated net loss of ¥1.6 billion.  The bank has in addition lowered its full-year guidance by ¥3 billion to just ¥500 million: a reduction of 87.5%.  The problem is burgeoning valuation losses on securities. While the interim dividend of ¥40/share is being maintained despite the likely 1H loss, the final dividend has been cut from ¥40/share to ¥30/share.
Foreign investors continue to own around 11% of outstanding shares despite the bank’s long-standing structural issues, low efficiency, demanding valuations (FY3/2021 PER now exceeds 100x!) and continuing reliance on volatile non-core income sources to prop up flagging revenues.  Caveat emptor!  (May the Buyer Beware!)

Hyakujushi Bank (8336 JP):  The First Cut Is the Deepest

Thematic (Sector/Industry)

The COVID-19 pandemic has created unprecedented demand from corporate borrowers for loans, but it is suspected that the vast majority of these emergency loans have been made at virtually no profit margin for the banks.  Moreover, most of this money appears to have been redeposited with the banks for safe-keeping until really needed.  Meanwhile, the rise in workers working from home and restrictions on international travel has resulted in substantially lower discretionary spending (such as on holiday travel) and higher levels of saving.
The cash piles are turning into cash mountains at the banks, prompting some banks to withdraw some deposit products and suspend branch counter operations for cash deposits, cash withdrawals and currency exchange.
It’s a whole new world of pain for Japan’s embattled banks.

The COVID-19 pandemic has created unprecedented demand from corporate borrowers for loans, but it is suspected that the vast majority of these emergency loans have been made at virtually no profit margin for the banks.  Moreover, most of this money appears to have been redeposited with the banks for safe-keeping until really needed.  Meanwhile, the rise in workers working from home and restrictions on international travel has resulted in substantially lower discretionary spending (such as on holiday travel) and higher levels of saving.
The cash piles are turning into cash mountains at the banks, prompting some banks to withdraw some deposit products and suspend branch counter operations for cash deposits, cash withdrawals and currency exchange.
It’s a whole new world of pain for Japan’s embattled banks.

After hitting a peak of ¥535.407 trillion (US$5.10 trillion) in June, overall loan outstandings have started to edge down over the last three months to ¥534.206 trillion (US$5.08 trillion) as of the end of September, albeit by a mere 0.1% month-on-month (MoM).  The major banks have registered the biggest declines of around 0.5% MoM, but they still represent 40% of total bank lending in Japan.  By contrast, both the Japanese Bankers Association and the Bank of Japan reported that lending by the regional and secondary regional banks continues to increase, with YoY growth rates of +5.6% and +7.1%, respectively.  Aggregate lending by the 64 regional banks now represents 42% of total bank lending in Japan, while aggregate lending by the 38 secondary regional banks is around 9.6% of total bank lending.

After hitting a peak of ¥535.407 trillion (US$5.10 trillion) in June, overall loan outstandings have started to edge down over the last three months to ¥534.206 trillion (US$5.08 trillion) as of the end of September, albeit by a mere 0.1% month-on-month (MoM).  The major banks have registered the biggest declines of around 0.5% MoM, but they still represent 40% of total bank lending in Japan.  By contrast, both the Japanese Bankers Association and the Bank of Japan reported that lending by the regional and secondary regional banks continues to increase, with YoY growth rates of +5.6% and +7.1%, respectively.  Aggregate lending by the 64 regional banks now represents 42% of total bank lending in Japan, while aggregate lending by the 38 secondary regional banks is around 9.6% of total bank lending.

The megabankers are awash in cash: their loans to deposits ratios (LDR)  -  an important measure of overall efficiency  -  have collapsed to below 52%, whereas back in 2001 they were close to 98%.  In the meantime, margins remain under pressure amidst this hyper-liquidity, banks are struggling to make any profit on their domestic book, unrealised securities gains have been whittled away, credit costs are rising exponentially, while the COVID-19 pandemic has created unprecedented demand from corporate borrowers for loans but made at virtually no profit margin.  Return on asset (RoA) and return on equity (RoE) ratios can only deteriorate further in such an environment.While many Japanese bank stocks have risen by double-digits over the last three months, rising on a tide of cautious investor optimism over the outlook for recovery in Japan’s manufacturing sector post-COVID-19, it remains a fact that Japanese banks have underperformed Topix virtually unchecked since 2015.  We see no signs of this trend reversing.  “Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for FY3/2021 and beyond.

The megabankers are awash in cash: their loans to deposits ratios (LDR)  -  an important measure of overall efficiency  -  have collapsed to below 52%, whereas back in 2001 they were close to 98%.  In the meantime, margins remain under pressure amidst this hyper-liquidity, banks are struggling to make any profit on their domestic book, unrealised securities gains have been whittled away, credit costs are rising exponentially, while the COVID-19 pandemic has created unprecedented demand from corporate borrowers for loans but made at virtually no profit margin.  Return on asset (RoA) and return on equity (RoE) ratios can only deteriorate further in such an environment.While many Japanese bank stocks have risen by double-digits over the last three months, rising on a tide of cautious investor optimism over the outlook for recovery in Japan’s manufacturing sector post-COVID-19, it remains a fact that Japanese banks have underperformed Topix virtually unchecked since 2015.  We see no signs of this trend reversing.  “Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for FY3/2021 and beyond.

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

It is rare for Japan’s banks to shine. We wonder if this is now their time and even if only fleetingly so? Credit costs are down substantially for almost every reporting bank in the June quarter, at least so far. Most will recognize by now that this crisis is not like past crises, and that as we turn economies back on, together with unprecedented stimulus, low interest rates, the recovery profile can also be very different. We are seeing this within many economies and Japan’s banks stand out, globally. Their credit cost delta is generally higher than others and what matters more is that some have seen their previous six months’ credit costs still far higher than recent years. This can mean substantially lower provisions in coming quarters, leading to substantially higher profit.

It is rare for Japan’s banks to shine. We wonder if this is now their time and even if only fleetingly so? Credit costs are down substantially for almost every reporting bank in the June quarter, at least so far. Most will recognize by now that this crisis is not like past crises, and that as we turn economies back on, together with unprecedented stimulus, low interest rates, the recovery profile can also be very different. We are seeing this within many economies and Japan’s banks stand out, globally. Their credit cost delta is generally higher than others and what matters more is that some have seen their previous six months’ credit costs still far higher than recent years. This can mean substantially lower provisions in coming quarters, leading to substantially higher profit.

Japan

The Shizuoka Bank, Ltd. is a regional bank that mainly operates in Shizuoka and its surrounding area. The Bank provides general banking services such as deposits, loans, and exchange transactions. The Shizuoka Bank also offers trust banking, securities brokerage, leasing, and consulting services.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Shizuoka Bank (8355 JP)

Hyakujushi Bank (8336 JP): The First Cut Is the Deepest

The bank has slashed its interim guidance to a Y1.6bn consolidated net loss, cut its FY3/2021 NP guidance by 87.5% to just Y500mn and cut the...

J. Brian Waterhouse

Japanese Banks: Mountains of Money

The cash piles at the banks are turning into cash mountains, prompting some to withdraw some deposit products and suspend counter operations for...

J. Brian Waterhouse

Japanese Bank Lending: Flatlining

Loan and deposit data for Japanese banks released by both the BoJ and the JBA for September 2020 confirm that the ‘dash for cash’ by major...

J. Brian Waterhouse

Japanese Banks: Awash in Cash

The megabankers are awash in cash: their loans to deposits ratios (LDR) - an important measure of overall efficiency - have collapsed to below...

J. Brian Waterhouse

Japan Banks – Rare Time to Shine?

It is rare for Japan’s banks to shine. We wonder if this is now their time and even if only fleetingly so? Credit costs are down substantially for...

Daniel Tabbush

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)