Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Thematic (Sector/Industry)

<p>Data for May 2021 from both the Japanese Bankers Association (JBA) and the Bank of Japan (BoJ) confirm that YoY loan growth for Japanese commercial banks continues to fall, led by the major banks where YoY loan growth is now in negative territory.  Loan growth at all banks fell to just +0.5% YoY at the end of May, according to the JBA (April was +2.6% YoY).  We expect that June data (to be released in mid-July) from the JBA and BoJ may reveal overall YoY loan growth is heading for the zero-level.</p><p>January through mid-March saw an unusually strong rally in bank shares, in line with trends in other global stock markets.  The Topix Banks Index peaked at 162.08 on 19 March 2021  -  just 4 days after the notorious Ides of March ‘turning-point’ that we have often referred to in Smartkarma Insights on Japanese banks’ share price performance  -  and has softened to the 145 level.  The sector’s surprise outperformance of Topix in CY2021 has been undermined by a sub-par June performance and on a longer-term view (as we show at the end of this Insight) and despite this year’s rally the sector remains a disappointing investment against the broader Topix Index.</p><p><strong><em><a href="https://www.smartkarma.com/entities/mitsubishi-ufj-financial-group" target="_blank" data-smartkarma-citation="entities:218:1" rel="noopener">Mitsubishi UFJ Financial (MUFG) (8306 JP)</a></em></strong> is the best performer of the major banks so far this year: up +33.6% over the last six months.  That said, this pales in comparison with bank stocks in other markets such as the US and Europe, where economies are recovering from the coronavirus pandemic and there are rising hopes of a mild steepening of the yield curve.  Meanwhile, despite greater concentration on boosting fee income and lowering overheads, many Japan’s banks remain seemingly unable to fully offset the adverse effects of the near-zero interest rate environment on domestic earnings.</p><p>“<em>Caveat Emptor!”</em> (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for the remainder of 2021 and beyond.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/215/895/original/8300-WR-JBanks-2021-0628-ZeroSheFlies-TPNBNKvsTPXin2021.jpg?1624939811" class="editor-image img-responsive" data-smartkarma-image-id="215895"></figure></section>

Data for May 2021 from both the Japanese Bankers Association (JBA) and the Bank of Japan (BoJ) confirm that YoY loan growth for Japanese commercial banks continues to fall, led by the major banks where YoY loan growth is now in negative territory.  Loan growth at all banks fell to just +0.5% YoY at the end of May, according to the JBA (April was +2.6% YoY).  We expect that June data (to be released in mid-July) from the JBA and BoJ may reveal overall YoY loan growth is heading for the zero-level.January through mid-March saw an unusually strong rally in bank shares, in line with trends in other global stock markets.  The Topix Banks Index peaked at 162.08 on 19 March 2021  -  just 4 days after the notorious Ides of March ‘turning-point’ that we have often referred to in Smartkarma Insights on Japanese banks’ share price performance  -  and has softened to the 145 level.  The sector’s surprise outperformance of Topix in CY2021 has been undermined by a sub-par June performance and on a longer-term view (as we show at the end of this Insight) and despite this year’s rally the sector remains a disappointing investment against the broader Topix Index.Mitsubishi UFJ Financial (MUFG) (8306 JP) is the best performer of the major banks so far this year: up +33.6% over the last six months.  That said, this pales in comparison with bank stocks in other markets such as the US and Europe, where economies are recovering from the coronavirus pandemic and there are rising hopes of a mild steepening of the yield curve.  Meanwhile, despite greater concentration on boosting fee income and lowering overheads, many Japan’s banks remain seemingly unable to fully offset the adverse effects of the near-zero interest rate environment on domestic earnings.“Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for the remainder of 2021 and beyond.

<p>Ever more, ever higher: deposits in Japan keep flooding into the banks as each month passes, reaching an all-time high at the end of April 2021 of ¥859.952 trillion (US$7.88 trillion), according to data provided by the Japanese Bankers Association (JBA).  It was the 175<sup>th</sup> continuous month of increase, according to the JBA, although the rate of increase on both a MoM (+0.6%) and YoY (+8.2%) basis did not set a new record, reflecting a barely perceptible slowdown in the inflow.</p><p>According to the Bank of Japan (BoJ), average deposit balances in April 2021 rose +1.5% MoM, or by ¥15.772 trillion (US$144.7 billion), to ¥1,083.032 trillion (US$9.936 trillion); this was also an all-time high level.  On a YoY basis, according to the BoJ data, average deposit balances rose by a remarkable +8.4%, or by ¥83.991 trillion (US$770.56 billion), so well short of last month’s record +8.7% YoY growth rate.</p><p>What to do with all that cash?  Despite the bankers’ best efforts to lend out those funds to help support an economic recovery, the rate of inflow far surpasses the rate of outflow.  So much so that major banks’ loan to deposit (LDR) ratios have now fallen to historic lows of 48.8%, with lending margins remaining under constant downward pressure.  Japanese banks’ investments in Japanese government bonds (JGBs) are currently at their highest level in 5 years, according to Bank of Japan data, even though yields are minimal at best, and negative-yielding in many cases.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/210/232/original/8300-WR-JBanks-2021-0531-Evermore-JBAData-LDR-MajorvsReg-2017-2021.jpg?1622461040" class="editor-image img-responsive" data-smartkarma-image-id="210232"></figure></section><p>“<em>Caveat Emptor!”</em>  (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for the remainder of 2021 and beyond.</p>

Ever more, ever higher: deposits in Japan keep flooding into the banks as each month passes, reaching an all-time high at the end of April 2021 of ¥859.952 trillion (US$7.88 trillion), according to data provided by the Japanese Bankers Association (JBA).  It was the 175th continuous month of increase, according to the JBA, although the rate of increase on both a MoM (+0.6%) and YoY (+8.2%) basis did not set a new record, reflecting a barely perceptible slowdown in the inflow.According to the Bank of Japan (BoJ), average deposit balances in April 2021 rose +1.5% MoM, or by ¥15.772 trillion (US$144.7 billion), to ¥1,083.032 trillion (US$9.936 trillion); this was also an all-time high level.  On a YoY basis, according to the BoJ data, average deposit balances rose by a remarkable +8.4%, or by ¥83.991 trillion (US$770.56 billion), so well short of last month’s record +8.7% YoY growth rate.What to do with all that cash?  Despite the bankers’ best efforts to lend out those funds to help support an economic recovery, the rate of inflow far surpasses the rate of outflow.  So much so that major banks’ loan to deposit (LDR) ratios have now fallen to historic lows of 48.8%, with lending margins remaining under constant downward pressure.  Japanese banks’ investments in Japanese government bonds (JGBs) are currently at their highest level in 5 years, according to Bank of Japan data, even though yields are minimal at best, and negative-yielding in many cases.“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:  In the Land of Evermore

<p>The lending ‘boom’, caused by Japanese corporates rushing to secure lines of credit in anticipation of extended nationwide ‘lock-downs’ to counteract the spread of the coronavirus in Japan, is largely over.  Data for April 2021 from both the Japanese Bankers Association (JBA) and the Bank of Japan (BoJ) confirm that YoY loan growth for Japanese commercial banks is falling sharply back to previous mean levels of 2%-3% after peaking at +6.9% YoY in July 2020.</p><p>January through mid-March saw an unusually strong rally in bank shares, in line with trends in other global stock markets.  As often happens once mid-March is reached, the bank sector then sharply underperformed for the next six weeks, only to rally once again through May.  However, trees do not grow to Heaven, and stock prices do not rise for ever  –  especially Japanese bank stocks.  Although the Japanese bank sector is still up some +16% over Topix for CY2021, we note that the sector has once again started to underperform Topix over the past week. </p><p>Reverting to the mean is an uninspiring development when it comes to Japanese bank stock performance, as the graph at the end of this Insight clearly shows.</p><p>“<em>Caveat Emptor!”</em> (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for the remainder of 2021 and beyond.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/210/200/original/JBanks-2021-0531-TPNBNKvsTPX-2021.jpg?1622450797" class="editor-image img-responsive" data-smartkarma-image-id="210200"></figure></section>

The lending ‘boom’, caused by Japanese corporates rushing to secure lines of credit in anticipation of extended nationwide ‘lock-downs’ to counteract the spread of the coronavirus in Japan, is largely over.  Data for April 2021 from both the Japanese Bankers Association (JBA) and the Bank of Japan (BoJ) confirm that YoY loan growth for Japanese commercial banks is falling sharply back to previous mean levels of 2%-3% after peaking at +6.9% YoY in July 2020.January through mid-March saw an unusually strong rally in bank shares, in line with trends in other global stock markets.  As often happens once mid-March is reached, the bank sector then sharply underperformed for the next six weeks, only to rally once again through May.  However, trees do not grow to Heaven, and stock prices do not rise for ever  –  especially Japanese bank stocks.  Although the Japanese bank sector is still up some +16% over Topix for CY2021, we note that the sector has once again started to underperform Topix over the past week. Reverting to the mean is an uninspiring development when it comes to Japanese bank stock performance, as the graph at the end of this Insight clearly shows.“Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for the remainder of 2021 and beyond.

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>Today, <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> reported results which were "in line" with the revised forecasts of 6 May, reporting net income of ¥45.1bn vs the ¥45.0bn forecast (which was against the forecast of ¥34.0bn for the year to 31 March as of Q3. </p><div>The forecast for net income to March 2022 is ¥40.0bn. This constitutes a fall of 11.3% vs this year's result, but as it does not include the ¥9.7bn one-off gain from the sale of Jih Sun shares, it actually constitutes an increase in business income. </div><div></div><div>And the Bank announced a buyback of up to 20 million shares, spending up to ¥20 billion.</div><div></div><div>More below the fold.</div>

Today, Shinsei Bank (8303 JP) reported results which were "in line" with the revised forecasts of 6 May, reporting net income of ¥45.1bn vs the ¥45.0bn forecast (which was against the forecast of ¥34.0bn for the year to 31 March as of Q3. The forecast for net income to March 2022 is ¥40.0bn. This constitutes a fall of 11.3% vs this year's result, but as it does not include the ¥9.7bn one-off gain from the sale of Jih Sun shares, it actually constitutes an increase in business income. And the Bank announced a buyback of up to 20 million shares, spending up to ¥20 billion.More below the fold.

Shinsei Reports Results - What Looks Bad Isn't So Bad, But It Isn't Fantastic

<p>Bank deposits hit an all-time high of ¥854.608 trillion (US$7.84 trillion) on 31 March 2021, according to the Japanese Bankers Association (JBA), rising +2.0% MoM and a remarkable +9.7% YoY.  According to the Bank of Japan (BoJ), average deposit balances in March 2021 were ¥1,067.259 trillion (US$9.79 trillion); this was also an all-time high level.</p><p>For Japanese bankers, however, such impressive statistics are anything but good news.  Already awash in surplus cash, adding another ¥6.0 trillion (US$55.15 billion) to the banks’ collective coffers in a single month is of almost no value to them whatsoever. The metaphorical equivalent of such an event would be something like turning a fire hose onto an already-flooded river.  It just makes an already bad situation far worse.  Major banks’ loan to deposit (LDR) ratios have now fallen to historic lows of 49%, underlining the fact that customer funds continue to flow into Japanese banks far faster than they are able to process that inflow and reinvest the proceeds as loans to help support an economic recovery. Banks simply do not need those mountains of money that pile higher and higher as each month passes.</p><p>January through mid-March saw an unusually strong rally in bank shares, in line with trends in other global stock markets.  Trees do not grow to Heaven, however, and stock prices do not rise for ever  –  especially Japanese bank stocks.  Having passed the ‘marker point’ for the end of perennial bank rallies, namely 15 March (“The Ides of March”), the sector has weakened noticeably over the last month (after peaking on 19 March 2021 at 162.08) with the mega-banks falling close to 10% while other major banks and large regional banks have seen their share prices falling by 15% or more.</p><p>“<em>Caveat Emptor!”</em> (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for the remainder of 2021 and beyond.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/203/578/original/image_7378929621619743178079.png?1619743180" class="editor-image img-responsive" data-smartkarma-image-id="203578"></figure>

Bank deposits hit an all-time high of ¥854.608 trillion (US$7.84 trillion) on 31 March 2021, according to the Japanese Bankers Association (JBA), rising +2.0% MoM and a remarkable +9.7% YoY.  According to the Bank of Japan (BoJ), average deposit balances in March 2021 were ¥1,067.259 trillion (US$9.79 trillion); this was also an all-time high level.For Japanese bankers, however, such impressive statistics are anything but good news.  Already awash in surplus cash, adding another ¥6.0 trillion (US$55.15 billion) to the banks’ collective coffers in a single month is of almost no value to them whatsoever. The metaphorical equivalent of such an event would be something like turning a fire hose onto an already-flooded river.  It just makes an already bad situation far worse.  Major banks’ loan to deposit (LDR) ratios have now fallen to historic lows of 49%, underlining the fact that customer funds continue to flow into Japanese banks far faster than they are able to process that inflow and reinvest the proceeds as loans to help support an economic recovery. Banks simply do not need those mountains of money that pile higher and higher as each month passes.January through mid-March saw an unusually strong rally in bank shares, in line with trends in other global stock markets.  Trees do not grow to Heaven, however, and stock prices do not rise for ever  –  especially Japanese bank stocks.  Having passed the ‘marker point’ for the end of perennial bank rallies, namely 15 March (“The Ides of March”), the sector has weakened noticeably over the last month (after peaking on 19 March 2021 at 162.08) with the mega-banks falling close to 10% while other major banks and large regional banks have seen their share prices falling by 15% or more.“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:  Mountain High, Value Low

Japan

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 Bank Lending: Zero She Flies

The sector’s surprise outperformance of Topix in CY2021 has been undermined by a sub-par June performance. Zero growth beckons. Caveat Emptor...

J. Brian Waterhouse

Japanese Bank Deposits: In the Land of Evermore

Ever more, ever higher: deposits in Japan keep flooding into the banks. Despite the bankers’ best efforts to lend out those funds, the rate of...

J. Brian Waterhouse

Japanese Bank Lending: Mean Reversion

The lending ‘boom’, triggered by companies rushing to secure bank funding in anticipation of extended nationwide ‘lock-downs’ to counteract the...

J. Brian Waterhouse

Shinsei Reports Results - What Looks Bad Isn't So Bad, But It Isn't Fantastic

Shinsei's results were better than expected. The forecast for FY22 is a bit light, and quite conservative. A 5.7% buyback is announced, but the...

Travis Lundy

Japanese Bank Deposits: Mountain High, Value Low

Bank deposits hit an all-time high of ¥854.608 trillion (US$7.84 trillion) on 31 March 2021. For Japanese bankers, however, such impressive...

J. Brian Waterhouse

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