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 111 banks that are members of the Japanese Bankers Association (JBA) rose +9.7% YoY in February 2021, or by ¥74.454 trillion (US$683.1 billion), marking the third month in succession that bank deposits have achieved the highest YoY growth level ever recorded.  Deposits at all banks grew by ¥2.956 trillion (US$271.2 billion) in February alone to a new record level of ¥838.224 trillion (US$7.690 trillion) and represented the 173rd consecutive month of YoY deposit growth for all JBA member banks.As the fiscal year-end approaches, banks are becoming increasingly concerned about the current state of their computer systems and their ability to handle a surge in deposit and loan rollovers on Wednesday 31 March.  Extra staff have been scheduled to operating departments and, according to local financial media, all leave cancelled at some regional banks in order to ensure that the banks do not suffer a similar fate to that of Mizuho Bank which suffered four highly embarrassing computer systems failures last month in the space of two weeks (please refer to Smartkarma Insight <a href="https://www.smartkarma.com/insights/mizuho-financial-group-8411-jp-deja-vu-all-over-again" target="_blank" data-smartkarma-citation="insights:48688" rel="noopener">Mizuho Financial Group (8411 JP):  Deja Vu All Over Again</a> for further details).The banking sector has enjoyed a relief rally since the start of the year, noticeably outperforming the Topix index for the first time in several years.  However, trees do not grow to heaven, and bank rallies tend to peter out in 90 days or so.  Having passed the ‘Ides of March’ perennial waypoint after which most Japanese bank rallies peter out, investors are already starting to take profits in the sector and seeking out areas of the Japanese stock market where the fundamentals are strong enough to support sustained outperformance.  Meanwhile, awash in cash, with margins under relentless pressure and core earnings deteriorating, the Japanese banking sector faces an increasingly clouded future 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.

Deposit growth at the 111 banks that are members of the Japanese Bankers Association (JBA) rose +9.7% YoY in February 2021, or by ¥74.454 trillion (US$683.1 billion), marking the third month in succession that bank deposits have achieved the highest YoY growth level ever recorded.  Deposits at all banks grew by ¥2.956 trillion (US$271.2 billion) in February alone to a new record level of ¥838.224 trillion (US$7.690 trillion) and represented the 173rd consecutive month of YoY deposit growth for all JBA member banks.As the fiscal year-end approaches, banks are becoming increasingly concerned about the current state of their computer systems and their ability to handle a surge in deposit and loan rollovers on Wednesday 31 March.  Extra staff have been scheduled to operating departments and, according to local financial media, all leave cancelled at some regional banks in order to ensure that the banks do not suffer a similar fate to that of Mizuho Bank which suffered four highly embarrassing computer systems failures last month in the space of two weeks (please refer to Smartkarma Insight Mizuho Financial Group (8411 JP):  Deja Vu All Over Again for further details).The banking sector has enjoyed a relief rally since the start of the year, noticeably outperforming the Topix index for the first time in several years.  However, trees do not grow to heaven, and bank rallies tend to peter out in 90 days or so.  Having passed the ‘Ides of March’ perennial waypoint after which most Japanese bank rallies peter out, investors are already starting to take profits in the sector and seeking out areas of the Japanese stock market where the fundamentals are strong enough to support sustained outperformance.  Meanwhile, awash in cash, with margins under relentless pressure and core earnings deteriorating, the Japanese banking sector faces an increasingly clouded future 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.

Overall lending, in terms of loans outstanding, is now relatively static, even though YoY growth rates remain comparatively high at around +5.7%pa.  End-February 2021 loan outstandings have drifted back to June 2020 levels, that is to around to the time of the surge in new lending as Japan came out of its first COVID-induced nationwide lock-down.While the Japanese bank sector has enjoyed a rally since the beginning of the year on the back of a weakening Yen, the start of the roll-out of COVID-19 vaccines and a steepening of the long-bond yield curve (albeit from negative territory to closer to zero), the fundamental outlook for the banks remains clouded.  Technically, having passed the ‘marker point’ for the end of perennial bank rallies, namely 15 March (“The Ides of March”), we expect the sector to weaken on reducing volume as we approach the fiscal year-end in Japan.The first quarter of CY2021 has been a fun ride for holders of the more liquid Japanese bank stocks, but trees do not grow to Heaven and stock prices do not rise for ever  –  especially Japanese bank stocks.“Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for the remainder of 2021 and beyond.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/196/406/original/JBanks-2021-0323-TPXvsTPNBNK-2015-2021.jpg?1616476627" class="editor-image img-responsive" data-smartkarma-image-id="196406"></figure></section>

Overall lending, in terms of loans outstanding, is now relatively static, even though YoY growth rates remain comparatively high at around +5.7%pa.  End-February 2021 loan outstandings have drifted back to June 2020 levels, that is to around to the time of the surge in new lending as Japan came out of its first COVID-induced nationwide lock-down.While the Japanese bank sector has enjoyed a rally since the beginning of the year on the back of a weakening Yen, the start of the roll-out of COVID-19 vaccines and a steepening of the long-bond yield curve (albeit from negative territory to closer to zero), the fundamental outlook for the banks remains clouded.  Technically, having passed the ‘marker point’ for the end of perennial bank rallies, namely 15 March (“The Ides of March”), we expect the sector to weaken on reducing volume as we approach the fiscal year-end in Japan.The first quarter of CY2021 has been a fun ride for holders of the more liquid Japanese bank stocks, but trees do not grow to Heaven and stock prices do not rise for ever  –  especially Japanese bank stocks.“Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for the remainder of 2021 and beyond.

The Japanese financial markets are now so liquid, thanks to the efforts of the BoJ as well as the commercial banks to minimize the impact of the coronavirus pandemic, that bankruptcies in January 2021 fell to their lowest level in 31 years.  Meanwhile, overall lending continues to edge down in terms of loans outstanding, even though YoY growth rates remain relatively high.While the Japanese bank sector has enjoyed a rally since the beginning of the year as the Nikkei-225 Index rises to its highest level in 31 years on high hopes for the successful roll-out of an effective COVID-19 vaccine, the fundamental outlook for the banks is clouded.   “Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for 2021 and beyond.

The Japanese financial markets are now so liquid, thanks to the efforts of the BoJ as well as the commercial banks to minimize the impact of the coronavirus pandemic, that bankruptcies in January 2021 fell to their lowest level in 31 years.  Meanwhile, overall lending continues to edge down in terms of loans outstanding, even though YoY growth rates remain relatively high.While the Japanese bank sector has enjoyed a rally since the beginning of the year as the Nikkei-225 Index rises to its highest level in 31 years on high hopes for the successful roll-out of an effective COVID-19 vaccine, the fundamental outlook for the banks is clouded.   “Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for 2021 and beyond.

Japanese Bank Lending:  The Good, The Bad & The Terminally Indebted

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.

Often, Japan’s banks do not follow global or regional themes. This is not so at present, where quarterly profit is strong. Mainstream banks have not yet reported, but we may expect similarly strong numbers.

Often, Japan’s banks do not follow global or regional themes. This is not so at present, where quarterly profit is strong. Mainstream banks have not yet reported, but we may expect similarly strong numbers. 

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 !

Japan

Shinkin Central Bank is a central bank for shinkin banks nationwide, operating as a cooperative financial institution.  The Bank has developed businesses in a variety of fields that contribute the shinkin banking industry.  The Bank's services include enhancement of the credit standing, efficient use of shikin bank's surplus funds, and settlement of domestic exchange transaction.

Resona Holdings, Inc. operates as a holding company. The Company, through its subsidiaries, provides financial services, including banking, trust operations, and credit card services. Resona Holdings also offers consulting services related to personal loans, asset management, and asset succession.

Concordia Financial Group, Ltd. is a holding company established through the merger of Bank of Yokohama and Higashi-Nippon Bank. The Company provides banking services and other financial services.

The Chiba Bank, Ltd. is a regional bank based in Chiba Prefecture. The Bank offers general banking services including deposits, loans, and foreign exchange transactions. The Chiba Bank also develops software and provides financial services such as leasing, securities brokerage, letter of credit, and credit cards.

Fukuoka Financial Group, Inc. is a holding company established through the merger of the Bank of Fukuoka and Kumamoto Family Bank. As a financial group, the Company provides banking services including deposits, loans, foreign currency transactions. The Company also provides other financial services such as credit card, letter of credit, and leasing services.

The Bank of Kyoto, Ltd. is a regional bank in Kyoto.  The Bank provides banking services including deposits, savings, loans, foreign exchange transactions, and securities investments.  The Bank of Kyoto also provides financial services such as letter of credit, leasing, loans, and credit cards.

Mebuki Financial Group Inc. is a holding company established through the merger of Joyo Bank and Ashikaga Bank. As a financial group, the Company offers deposits, Loans, foreign exchange transactions, commercial and trust banking. Mebuki Financial Group also provides financial services such as letter of credit, credit cards and consulting.

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.

The Gunma Bank, Ltd. is a regional bank based in Gunma Prefecture.  The Bank provides banking services such as deposits, loans, and foreign exchange transaction.  The Gunma Bank also provides financial services such as leasing, credit cards, letter of credit, and investment advisory, and develops information systems.

The Hachijuni Bank, Ltd. is a regional bank based in Nagano Prefecture. The Bank provides banking services such as deposits, loans, foreign exchange transactions, and trust accounts. The Bank also provides financial services such as leasing, credit cards, credit guarantee, debt recovery, trading, and venture capital and operates branches overseas.

CIMB Group Holdings Berhad provides commercial banking and related financial services. The Company and its subsidiaries, operate as a regional universal bank offering a full range of financial products and services, covering corporate and investment banking, consumer banking, treasury, insurance and asset management.

BDO Unibank Inc provides banking services. The Bank offers saving accounts, investment, loans, credit and debit cards, remittance, insurance, and trade financing services. BDO Unibank serves customers in Philippines.

Punjab National Bank provides financial services such as corporate and personal banking, industrial finance, agricultural finance, financing of trade and international banking. The Company provides services to domestic conglomerates, medium and small industrial units, exporters, non-resident Indians and multinational companies.

Bank of Baroda owns and operates commercial banks in India.  The Group's banks provide the traditional forms of banking services, including CD's, Credit Card services and a variety of car loans, in addition to gold banking and a range of insurance services.  The Group also owns IBU International Finance Limited, an international banking company in Hong Kong.

Public Bank Berhad provides a range of banking and financial services which include leasing and factoring, stock and futures broking, financing for the purchase of licensed public vehicles, and other financial services. The Group's overseas operations include branches in Hong Kong, Sri Lanka, Laos, Cambodia, and Vietnam.

Bank of Nanjing Co., Ltd. operates commercial banking businesses. The Company offers deposits, loans, settlement, discounting, financial bond issuance, government bond underwriting, bank guarantee, and other related financial services. Bank of Nanjing provides services for enterprises and individuals.

E.Sun Financial Holding Company Ltd. is a holding company.  Through its subsidiaries, the Company provides banking, brokerage and dealer services.

Bank of Beijing Company Ltd. attracts deposits and offers commercial banking services.  The Bank offers short-, medium- and long-term loans, insurance, foreign exchange, international settlement, government bonds, and other products and services.

China Everbright Bank Company Limited provides banking services. The Company offers deposits, loans, domestic settlement, currency trading, and other services. China Everbright Bank provides its services to individuals, enterprises, and other clients.

IndusInd Bank Limited is a Mumbai-based Indian new generation bank established in 1994. The Bank provides a range of banking and financial services including  wholesale banking, credit monitoring, risk management, tele-banking, investment banking and commercial lending. IndusInd Bank operates branches throughout India as well as an office in Dubai and London.

Sumitomo Mitsui Trust Holdings, Inc. is a holding company established jointly by Chuo Mitsui Trust Holdings and Sumitomo Trust and Banking. As a financial group, the Bank provides trust banking business, as well as securities brokerage, assets management, and related financial services.

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Sumitomo Mitsui Trust Holdings (8309 JP)

Japanese Banks: Oodles of the Stuff

Banks are becoming increasingly concerned about the current state of their computer systems and their ability to handle a surge in deposit and loan...

J. Brian Waterhouse

Japanese Bank Lending: A Lot of Static

The first quarter of CY2021 has been a fun ride for holders of the more liquid Japanese bank stocks, but trees do not grow to Heaven and stock...

J. Brian Waterhouse

Japanese Bank Lending: The Good, The Bad & The Terminally Indebted

Japanese financial markets are now so liquid, thanks to the efforts of the BoJ and the commercial banks, that bankruptcies in January 2021 fell to...

J. Brian Waterhouse

Japan – Surge In December Profit

Mainstream Japan banks have not yet reported quarterly profit, but we may expect similarly strong numbers as indicated by those that have released...

Daniel Tabbush

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

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