LENDING & CREDIT | Staff Reporter, Japan

Japanese megabanks' overseas asset risks escalate

More than 70% of the banks' overseas loans were to non-Japanese clients.

For the megabanks, asset risks are growing outside Japan. According to Moody's, they are expanding their target overseas customer groups to more foreign corporate borrowers they have less experience with. As of end-March 2017, more than 70% of the three banks' overseas loans were to non-Japanese clients.

Here's more from Moody's:

Such new overseas loans carry different risks from those in Japan. Yet, slowing overseas loan growth will curb these asset risks. Also, even though the megabanks are increasing exposures to riskier foreign borrowers, they will likely continue to adopt conservative lending standards to keep risks from these assets manageable.

So far, the megabanks' overseas lending has been focused on foreign corporates with investment grade ratings and Japanese companies seeking foreign-currency financing. As a result, the megabanks' NPL ratios have been generally lower overseas than in Japan.

The commodities downturn has posed substantial risks to banks with significant overseas exposures to related sectors, but these risks have receded as commodity prices have stabilized.

Smaller banks' expansion outside Japan has been limited due to their lack of expertise and resources. Their overseas exposures are more focused on Japanese companies compared to the megabanks, so risks from these assets will remain low.

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