(MENAFN- Gulf Times) Japanese banks show Asia depreciation concern
11:00 PM
6
September
2015
A pedestrian walks next to a logo of the Mitsubishi UFJ Financial Group outside a branch of its bank in Tokyo. Japan's biggest lender said depreciation could weaken the finances of borrowers.
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Bloomberg
Tokyo
Japanese banks may be starting to regret their biggest increase in overseas lending in 30 years as Asian economies slump and currencies tumble.
Mitsubishi UFJ Financial Group Inc's assets in Asia excluding Japan made up 9.3% of the total as of March 31, the most in at least 10 years, according to its annual report filed in July. The nation's biggest lender said depreciation could weaken the finances of borrowers. Overdue loans from the region at Sumitomo Mitsui Financial Group rose 77% while those at Mizuho Financial Group increased 24% in the year ended March 31.
"We have seen non-performing loans go up in the past three quarters," said David Threadgold, a Tokyo-based analyst at Keefe, Bruyette & Woods, a boutique investment bank. "It's reasonable to think we could go through another round of that." Japanese banks, which focused on expanding in emerging Asia as yields fell to record lows at home, are now exposed to some of the world's worst-performing currencies. China's yuan devaluation sparked a sell-off that sent the Malaysian ringgit and the Indonesian rupiah to their lowest levels since a regional financial crisis in 1998 and prompted the sharpest jump in default risk in Asia this year.
Asia has been a big focus for the expansion of the three banks. Their loans to the region hit ¥22.7tn ($189bn) at the end of March, the highest in at least a decade, according to their annual reports. Mitsubishi UFJ alone increased its assets, which include other exposures aside from loans, by 17.4% in the year ended March 31 to ¥26.2tn.
The growth has happened across the globe. Lending and investments by Japanese firms rose to $3.53tn in March, the most since at least 1983, according to Bank for International Settlements data.
Nine major Japanese banks loaned over ¥60tn through overseas branches in the fiscal year ended March 31, double the amount five years earlier, Bloomberg Intelligence senior analyst Francis Chan wrote in a report.
Foreign loans have become a drag on the balance sheets of megabanks in the past nine months as they increased provisions for losses in advances made from Sydney to Jakarta, said Threadgold at Keefe, Bruyette & Woods.
Mizuho's overseas business model is relatively resilient against downside risks because its clients are mainly high-quality non-Japanese Corps and it has a strong loan risk management system, said Masako Shiono, a spokeswoman in Tokyo. Sumitomo Mitsui said by e-mail that doing localised business while monitoring the economic environment will help lead to growth in the mid- to long-term. Mitsubishi UFJ spokesmen weren't immediately available to comment.
Asia is especially of concern. Moody's Investors Service made 63 downgrades in the region, excluding Japan, and only upgraded 13 times this year, amid a drop in raw material prices.
The Bloomberg Commodity Index closed at 85.14 on August 26, the lowest since 1999.
"The issue are downgrades rather than actual failures of borrowers," Threadgold said. "That would be reflected in the provisions in balance sheets." Mizuho's ratio of non-accrual, past due and restructured loans to total loans increased to 1.43% at the end of March from 1.28% six months earlier, according to Bloomberg Intelligence. Its non-performing loan ratio was at 1.2% as of March 2015 compared with 1.21% a year earlier. Past-due advances in Asia increased by ¥8.6bn.
The region has also helped improve profits for the banks.
Mitsubishi UFJ got ¥358.6bn of net income, or 23%, from Asia in the year ended March 31.
And while the exposure to the region has increased fast, it still represents a small portion of their total lending, according to Naoki Morimura, a director at Fitch Ratings in Tokyo.
The slowest growth in China's economy in 25 years could affect the profitability from Asia for the Japanese lenders.
"We have to be careful about potential indirect impact on the megabanks," said Ryoji Yoshizawa, a director at Standard & Poor's in Tokyo. "We are closely monitoring their risks and returns."
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