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Top 1000 World BanksSeptember 1 2021

Japan’s banks hit growth plateau

Japan’s banks have seen little movement in terms of their capital growth, but have held on in a challenging environment.
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Japan’s banks continue to struggle in a difficult operating environment which has been further hit by the Covid-19 pandemic. Gross domestic product shrank by 4.8% during 2020, representing the biggest decline since 2009.

While the country has recorded relatively few Covid cases for a developed economy, there have been several local lockdowns which have taken a toll on the economy. The postponed Tokyo Olympics, now set to take place in July and August, was expected to give the country a big economic boost. However, it seems unlikely that it will have the desired effect, with international attendees banned and restrictions on spectators.

Japan’s banks must have a feeling of déjà vu in the 2021 ranking, as once again Mitsubishi UFJ Financial Group (MUFG) has placed 10th in the Top 1000 World Banks ranking, a position it has held seven out of the past eight years. MUFG saw an increase of just 0.5% in its Tier 1 capital over the course of 2020. While arguably not a stellar result, it is better compared with the 2.1% drop it recorded at the end of 2019.

Sumitomo Mitsui Financial Group (SMFG) remains in second place in the country rankings, although it fell by two places to 16th in the main ranking. This decline comes despite the bank seeing its Tier 1 capital increase by 7.3%.

Norinchukin Bank, similarly, fell in the main ranking (by six places to 25) even though it posted a 4.9% increase in Tier 1 capital. But that allowed it to retain fourth place in the country ranking. The bank did see success in the best-performing banks ranking, knocking Nomura Holdings out of the top spot.

The agricultural, fisheries and forestry-focused bank, placed first out of the largest 10 Japanese banks in the growth, profitability, operational efficiency, soundness, and leverage categories, seeing a 92.7% increase in its total operating income and a 10.6 basis points improvement in return on assets (ROA); MUFG was the only other top 10 Japanese bank that improved its ROA ratio. Norinchukin Bank also has by far the lowest cost-to-income ratio of the top 10 banks – an impressive 22.7%.

Nomura Holdings, which took the top place for performance in 2020, fell to sixth this year, with big declines in its rankings for growth and operational efficiency from first and second, respectively, to 10th place in both this year. Its loan book shrank by 19.7%, the biggest drop among this cohort, it was the only bank to see a decline in assets (-5.1%) and its deposits grew by just 2.1%, compared to 10.7% and 9.8% for MUFG and SMFG, respectively. Its cost-to-income ratio is the highest among this peer group.

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Kimberley Long is the Asia editor at The Banker. She joined from Euromoney, where she spent four years as transaction services editor. She has a BA in English Language and Literature from the University of Liverpool, and an MA in Print Journalism from the University of Sheffield. Between degrees she spent a year teaching English in Japan as part of the JET Programme.
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