Overall, Japanese banks’ Tier 1 capital has risen slightly to $32.59bn (from $31.8bn last year), but their percentage of total Tier 1 capital has declined to 10% (from 11.2%). This is clearly reflected in The Banker’s Top 1000: of the top 25 Japanese banks (which range in the ranking from sixth in the world to 249th), all but two have slipped down in the world rankings. The two risers are Bank of Fukuoka (rising to 175th from 190th) and Hiroshima Bank (rising to 249th from 259th).
Japanese banks’ total assets have also declined overall, from $759.5bn last year to $752.9bn, and are shrinking as a percentage of total global banking assets, from 11.9% in 2006 to 10% this year.
Sumitomo Mitsui Financial Group (SMFG) is proving a volatile Top 1000 entrant. Last year, it shot up into eighth place in the rankings from 19th in 2005, with an impressive 42% increase in Tier 1 capital. This year, however, it has not only lost a place in the country rankings, going from second to third in Japan, but has dropped to 22nd in the Top 1000, with a 16% decline in Tier 1 capital (to $33.17bn) and a 22.7% drop in pre-tax profits.
Japanese banks are also struggling to increase pre-tax return on assets. Analysts suggest that an acceptable range for universal banks is 1.5% to 2.5%. SMFG’s 0.83%, Mitsubishi UFJ Financial Group’s 0.81% and Mizuho Financial Group’s 0.67% are therefore shy of the mark, and short of the 2.19% earned by the bank at the head of the table, Bank of America. That said, a similar critique could be levied at several of the big universal banks in top 20 slots – including UBS, at 21st with a pre-tax return on assets (ROA) of 0.61%, and BNP Paribas with a pre-tax ROA of 0.73%.
Other big Japanese banks are also struggling to grow profits. Mitsubishi UFJ has increased profits by only 0.5%, and Mizuho’s pre-tax profits, like those at SMFG, have declined, though by a more modest 0.5%.
The smaller Japanese banks are faring better at growing core capital, assets and pre-tax profits. Norinchukin, Japan’s fourth largest bank, may have lost a slot in the Top 1000 (down to 33 from 32 in 2006) but it has outshone its larger competitors by growing Tier 1 capital by 22%, assets by 9.4% and pre-tax profits by 88.1%; it has also managed to keep NPLs to a reasonable level, at 2.55% of its loan portfolio.
Shinsei, too, Japan’s ninth largest bank, in 115th place in the Top 1000 (down from 100 last year) has increased Tier 1 capital by 59.4%, assets by 13.8% and pre-tax profits by 12.4%. And Aozora Bank, ranked 118, has ramped up core capital by 18.8%, assets by 25.51% and pre-tax profits by 21.1%.
Nishi-Nippon State Bank, a new entrant into Japan’s top 25 last year, has this year been bounced out to 26, and replaced by another new entrant, Hiroshima Bank, with Tier 1 capital of $2126m.
Looking at the middle order Japanese banks, they have almost all slipped down the global rankings by at least 10 places, if not considerably more. The biggest losers were Sapporo Hokuyo Holdings, down 22 places to 222, Hokuhoku Financial Group, down 21 to 195, and Chugoku Bank, down 18 to 199. And little better is expected, as a recent Fitch report shows operating profit for Japanese banks has stayed flat for the past two years and is projected to stay flat over the next year, with capital gains projected to be minimal at best.TOP 25: JAPANESE BANKS ($M)
