Are Japan's banks about to make their presence felt?
The government has pushed Japan's banks to sell down their cross-shareholdings, and the capital this creates could see the country's leading lenders increasing their presence on the world stage.
Japanese banks would never have agreed to sell down their cross-shareholdings without a push from the government. But now this process is under way it could provide a big fillip for the Japanese banking sector.
The country's banks have resisted selling down the shares they own of their customers because they fear they will lose business. The government, by contrast, wants to see the banks use their capital to engage in more lending especially to the SME sector. The new corporate governance code, which came into force in June, requires the banks to justify their investments and provide “a detailed explanation of their objective and rationale”.
Now we are starting to get an idea of the impact this could have in practice. Japan’s largest bank Mitsubishi UFJ – the 10th largest bank by Tier 1 capital in the world – has said it will cut the total value of if its cross-shareholdings from 19% of Tier 1 capital to 10%.
Sumitomo Mitsui and Mizuho – the other two giants of Japanese banking – will also be selling down holdings. Collectively, Japanese banks hold about Y16,000bn ($130bn) of equity.
What is exciting is where these banks will put this capital to work. In a report in the September issue of The Banker, the chiefs of the three leading Japanese banks talked about the growth areas – SMEs and asset management domestically and investment banking overseas. As a result, Mitsubishi UFJ grew its proportion of net profits generated abroad from 20% in 2010 to 33% in 2014. Indeed, opportunities abound in Asia with European banks in retreat.
Very often when governments interfere in business the results are undesirable, but this seems to be one time when the outcome should be beneficial for all concerned.
Brian Caplen is the editor of The Banker.
