Asian growth story evades Japanese banks

The performance of Japan’s banks has been relatively weak in recent years, but the figures could worsen over the coming 12 months as the impact of the huge earthquake that hit the north-east of the country earlier this year reveals itself in the banks’ data. The Banker’s Top 100 Japan rankings are compiled using data taken at the end of March 2011, the same month as the catastrophe.

The profitability and return on assets of the Japanese banks has been relatively low, although it has grown on 2010’s figures. Hokuetsu Bank recorded the largest profit on average capital in Japan, with 16.99%, but this number pales in comparison to banks in some other Asian economies. Pakistan, which is the highest scoring country for profits on average capital in The Banker's Top 1000 World Banks rankings, has an average profit on average capital of 36.41%.

Japanese banks' average return on assets is also comparatively weak, with Tomony Holdings recording the largest percentage with 1.87%. Shizuoka Bank ranks second with 0.68% and Chiba Bank comes third with 0.66%. By comparison, the highest ranking Chinese bank by return on assets recorded 5.19% in the same period.

Expanding asset base

The Banker’s database shows that the aggregated return on assets for the banks in the Top 100 Japan rankings was 0.36%. By comparison, the aggregated return on assets for banks in the global top 1000 was 0.69%. Although Japan’s performance may seem poor, it marks an increase from 2010’s aggregated return on assets of 0.28%.

In the aggregated tables, one noticeable increase for Japan’s banks has been the size of their assets, with aggregated assets increasing by 16.25% to $12,315bn in 2011. A large proportion of these assets is accounted for by Japanese government bonds.

Domestic financial institutions hold a significant proportion of Japanese government bonds. At the end of December 2010, 45% of the Y727,000bn ($9450bn) of Japanese government bonds were held by the banks. By comparison, the percentage held by foreign investors is relatively small at only 4.8%.

Many of the Japanese banks have been buying up government bonds in recent months. For example, Mitsubishi UFJ Financial Group had 22% of its total assets in Japanese government bonds at the end of March 2011.

Top banks hold strong

As it did last year, Mitsubishi UFJ Financial Group tops The Banker’s Top 100 Japan rankings. It is ranked fifth in the world and is the only Japanese bank to feature in the global top 10 rankings by Tier 1 capital.

Mitsubishi UFJ Financial Group also tops the list of the top 10 Japanese banks by pre-tax profit, which stood at $9.125bn, placing it 15th in the global top 25 by this measure, flanked by the UK's Barclays in 14th place and Brazil's Banco Bradesco in 16th. Sumitomo Mitsui Financial Group, which ranks second in Japan in terms of pre-tax profits, is ranked 18th in the world.

While Japan has been overshadowed by the rising dominance of China in the global rankings, the country is still holding its own in the The Banker's Top 1000 rankings. Japan has 105 banks featuring in the global Top 1000, compared to China’s 111, with Japan’s top four banks all featuring in the top 25 in the world. Sumitomo Mitsui Financial Group, Japan’s second largest bank by Tier 1 capital, ranks 16th in the world; Mizuho Financial Group, the third largest in Japan, is 17th largest in the world by Tier 1 capital; and Norinchukin Bank is fourth in Japan and 25th in the world.

The order of the top four Japanese banks has remained unchanged over the past 12 months. There was a change in fifth and sixth place, with Nomura Holdings moving up to fifth, switching place with Resona Holdings.