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:  Back to Square One

Windamee Research

Japanese Banks

Thematic (Sector/Industry)

On a year-on-year basis (YoY), Japanese bank deposits have grown in aggregate every month for the last 15 years without a pause, swelling to ¥854.578 trillion (US$7.56 trillion) as of the end of September 2021, according to the latest data released by the Japanese Bankers Association (JBA).  Between May 2020 and April 2021, as lending surged and corporates redeposited their drawn credit lines with the banks for safekeeping until needed while the pandemic raged globally, the major banks’ YoY deposit growth rates soared into double-digits.  The banks’ already overflowing coffers were hit by a tsunami  of additional cash that they struggled to cope with profitably.With the gradual return to normality as Japan slowly emerges from nationwide lockdown and business activity recommences, much of that emergency borrowing is now being repaid using surplus bank deposits.  The torrent of cash has reverted to a steady stream.  But that is still not good news.The overriding problem for the banks is that net inflows of cash (via deposits) continue to exceed net outflows (via loans and securities investments).  Major banks’ loan to deposit (LDR) ratios have been declining for years and have now fallen to historic lows of under 49%.  Many banks are struggling to achieve little more than a few basis points on their overall business, while even some large banks are operating in the red on their domestic business.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/238/753/original/2021-1031-Deposits-LDR-MajorvsAll+2002-2021.jpg?1635673223" class="editor-image img-responsive" data-smartkarma-image-id="238753"></figure></section>The Japanese banking sector in 2021 has outperformed Topix for the first time in several years, aided by a weakening Yen against the US$ and hopes for a steepening yield curve in the US.  Yet, as we approach interim results announcements within the next few days, much of that 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.

On a year-on-year basis (YoY), Japanese bank deposits have grown in aggregate every month for the last 15 years without a pause, swelling to ¥854.578 trillion (US$7.56 trillion) as of the end of September 2021, according to the latest data released by the Japanese Bankers Association (JBA).  Between May 2020 and April 2021, as lending surged and corporates redeposited their drawn credit lines with the banks for safekeeping until needed while the pandemic raged globally, the major banks’ YoY deposit growth rates soared into double-digits.  The banks’ already overflowing coffers were hit by a tsunami  of additional cash that they struggled to cope with profitably.With the gradual return to normality as Japan slowly emerges from nationwide lockdown and business activity recommences, much of that emergency borrowing is now being repaid using surplus bank deposits.  The torrent of cash has reverted to a steady stream.  But that is still not good news.The overriding problem for the banks is that net inflows of cash (via deposits) continue to exceed net outflows (via loans and securities investments).  Major banks’ loan to deposit (LDR) ratios have been declining for years and have now fallen to historic lows of under 49%.  Many banks are struggling to achieve little more than a few basis points on their overall business, while even some large banks are operating in the red on their domestic business.The Japanese banking sector in 2021 has outperformed Topix for the first time in several years, aided by a weakening Yen against the US$ and hopes for a steepening yield curve in the US.  Yet, as we approach interim results announcements within the next few days, much of that 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 Torrent Becomes a Stream