Japanese banks seek higher interest incomes on rising rates, tamed deposit costs

Credit costs and nonperforming loans remain stable for the banking sector.

The gradual rise in Japan’s domestic interest rates and well-controlled costs for deposits will enable local banks to seek higher net interest income, according to S&P Global Ratings.

Continuing loan demand from corporates is also helping Japanese banks further restore their profitability, said Kensuke Sugihara, primary credit analyst for S&P, in the ratings agency’s mid-year outlook report.

“In facing higher interest rates, banks have curbed their bond holdings to minimize the increase in valuation losses,” Sugihara wrote.

Credit costs and nonperforming loans remain stable for the banking sector, he added.

Meanwhile, elevated equity prices and a rising yield curve will prompt savers to shift money from deposits to investments.

“The shifts, however, are unlikely to be material enough to disrupt system stability,” Sugihara wrote.