Nomura is one of the only major banking groups in Japan that does not rely on balance sheet lending to generate the bulk of its income.

Investment banking and asset management still play a small role for most of Japan’s top 10 banks, with net interest income accounting for more than 50% of the total. Nomura is the only major bank with low net interest income, at just under 10% of the total.

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Two other banks, Norinchukin and Sumitomo Trust, have interest income at less than 50% of the total owing to their relatively narrow business models. Norinchukin is the central bank for a number of cooperative banks, and a significant proportion of its revenues are generated by the funds managed for its member banks, classified as “other income” in its accounts. And Sumitomo Trust focuses on fiduciary activities, leading to a significant proportion of fee and commission income.

Japan data story 1

This leaves Nomura as the one major banking group that does not rely on balance sheet lending to generate the bulk of its income. That difference reflects its purer investment bank business model, compared to the more universal banking model of peers such as Mitsubishi UFJ, Sumitomo Mitsui or Mizuho. Fee and commission income is especially important to Nomura, at almost 62% of the total.

Japan data story 2

However, the investment bank focus did not bolster Nomura’s profit margin in the financial year ending March 2011, which was the weakest among the top 10. Pre-tax profits were only 10.2% of operating income in financial year 2010/2011, less than half the margins for Mitsubishi, Sumitomo and Mizuho. That was the result of a decline in profits by 0.64% in 2010/2011, whereas the aggregate profits for the 100 largest Japanese banks rose by almost 48% in the same period.

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