Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

J. Brian Waterhouse has been covering the Japanese financial sector as an analyst continuously since 1976, working for CLSA, Japaninvest, Rabobank, HSBC Securities, James Capel, Marine Midland Bank of New York and National & Grindlays Bank.  He has been ranked No.1 overall in Japanese banks research in Japan by Asiamoney for 6 of the past 9 years and was runner-up in 2015.  He was awarded the coveted Starmine prize as top Japanese bank stock picker in 2012 and 2014 and was runner-up in 2013.  He frequently appears on TV, radio and in international print media as a commentator on Japanese banking.

Senior Bank Analyst - Japanese Banks

Japanese Bank Lending:  Too Low For Zero

Gravity Works As WeWork Doesn't; Now Plan B

Windamee Research

Japanese Banks

Thematic (Sector/Industry)

Lending surged in CY2020 as Japan entered a prolonged COVID-induced nationwide lockdown, prompting corporates to draw down credit lines at banks in anticipation of severe business disruption and a heightened need for cash just to keep going.  However, much of that cash was redeposited with the banks for safekeeping until needed, swelling banks’ already overflowing coffers with more cash than they could possibly cope with profitably.Now that Japan is emerging from lockdown and business is hopefully returning slowly to some semblance of normality, much of that emergency borrowing is now being repaid.  Since much of that lending was kept with the banks anyway, loan repayments are being made using surplus bank deposits.The problem for the banks is that, even though YoY growth rates are showing a sharp decline, the net inflow continues to be higher than the net outflow despite the emergency loan repayments.  Major banks’ loan to deposit (LDR) ratios have been declining for years and have now fallen to historic lows of 48.5%.  It is becoming increasingly difficult for Japanese banks to make money on their domestic loan books; many are operating in the red on their domestic business, with even the largest banks at little better than break-even.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/232/876/original/8300-WR-JBanks-2021-0930-Deposits-TheParty%27sOver-LDR-MajorvsReg+2002-2021.jpg?1633005641" class="editor-image img-responsive" data-smartkarma-image-id="232876"></figure></section>The Japanese banking sector in 2021 has outperformed Topix for the first time in several years, aided by a weakening Yen against the US$ and hopes for a steepening yield curve in the US.  Yet, as we head into the third quarter of FY3/2022, much of the earlier outperformance by the banking sector against Topix has already been given back.“Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for the remainder of 2021 and beyond.

Lending surged in CY2020 as Japan entered a prolonged COVID-induced nationwide lockdown, prompting corporates to draw down credit lines at banks in anticipation of severe business disruption and a heightened need for cash just to keep going.  However, much of that cash was redeposited with the banks for safekeeping until needed, swelling banks’ already overflowing coffers with more cash than they could possibly cope with profitably.Now that Japan is emerging from lockdown and business is hopefully returning slowly to some semblance of normality, much of that emergency borrowing is now being repaid.  Since much of that lending was kept with the banks anyway, loan repayments are being made using surplus bank deposits.The problem for the banks is that, even though YoY growth rates are showing a sharp decline, the net inflow continues to be higher than the net outflow despite the emergency loan repayments.  Major banks’ loan to deposit (LDR) ratios have been declining for years and have now fallen to historic lows of 48.5%.  It is becoming increasingly difficult for Japanese banks to make money on their domestic loan books; many are operating in the red on their domestic business, with even the largest banks at little better than break-even.The Japanese banking sector in 2021 has outperformed Topix for the first time in several years, aided by a weakening Yen against the US$ and hopes for a steepening yield curve in the US.  Yet, as we head into the third quarter of FY3/2022, much of the earlier outperformance by the banking sector against Topix has already been given back.“Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for the remainder of 2021 and beyond.

Japanese Bank Deposits:  The Party's Over