Japanese banks hit by lower net interest income as loan demand dwindles

Intense Western competition is adding to the banking sector’s growing list of woes.

The net interest income of Japan’s largest lenders took a hit from ultra-low interest rate environment engineered by the central bank in 2017, according to a report from credit rating agency Moody’s, adding to a growing list of woes plaguing the country's struggling banks. 

MUFG registered a 5.4% YoY decline in net interest income which clocked in at $10.69 b (1.91t yen), dragging overall the bank’s headline profit figure. Mizuho’s figures displayed a similar downward trend with only Sumitomo Mitsui Financial Group being able to weather the unfavourable business conditions and post a marginal increase.

“The megabanks also face difficulty in boosting loans overseas, but slower loan growth is easing asset risks and pressure on non-yen liquidity,” the credit rating agency noted as the country’s rapidly ageing population have been shunning loans and turning to risk-free assets.

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Japanese banks have been bearing the brunt of steadily dwindling loan demand further aggravated by the Fed’s tightening policies and intensified competition from their US and European counterparts.

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"Also on a positive note, asset quality improved at all three banks from already strong levels, while credit costs declined, and retained earnings and reduced equity holdings raised capital ratios," said Tetsuya Yamamoto, a Moody's VP and senior credit officer.