With confirmation that Japan’s
economy shrank 3.3 percent in the last quarter of 2008, an annual
fall of roughly 13 percent, the country continues to thoroughly
disappoint.
Japan has always been on verge of becoming a
much more high profile banking player in world markets – and,
consequently, also on the verge of opening up its vast domestic
market to foreign competition. Even up until October last year, at
the peak of the market panic post-Lehman, Japan’s banks were being
touted as possible world saviours.
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Mitsubishi UFJ Financial’s full acquisition of
Union Bank of California and its investment in Morgan Stanley,
coupled with Nomura’s rescue of bits of Lehman Brothers, were taken
as evidence of this possibility.
But Japan’s international banking presence or
ambition is stark by its sheer absence. The problem has been the
inability of the country’s banks and regulators to sort out its
domestic problems, problems which began to surface around 20 years
ago.
Ever since the ¥30 trillion ($320 billion)
banking collapse of the mid-1990s and the government-engineered
creation of the banking giants that have continued to dominate the
market, Japan’s banking market transformation – coupled with a
sea-change in the risk-averse, cash-centric behaviour of the
Japanese themselves – was always about to happen.
Well, it didn’t, and now it certainly won’t.
The country’s domestic banks continue to down forecast earnings in
the face of a rapidly shrinking economy, while foreign banks are
running away.
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By GlobalDataING Direct has wasted €62 million on not
launching in the country (see ING
Direct: more customers, less profit) while Citigroup has
substantially cut back its ambitions to form “Japan’s leading
banking and securities group” less than a year after its $5 billion
acquisition of local broker Nikko Cordial last March (see RBI
588).
The rout started when the Japanese government
capped interest rates for loans and other consumer finance products
back at the end of 2006 (see RBI 582, 573, 565). New laws,
set to come into place at the start of 2010, sent the retail
lending industry in a tailspin from which it has not recovered.
The law caps the amount of interest that can
be charged on consumer loans: to 20 percent for loans of less than
¥100,000; 18 percent for loans of less than ¥1 million; and 15
percent for loan of ¥1 million or more. It also regulates the total
lending amount – in practice, limiting lending to one third of a
customer’s annual income.
And with cash-happy Japanese unlikely to
change saving or investing habits as the global recession savages
the country, earnings options for banks will remain extremely
limited over the next two years – until, at least, the market has
had time to adapt to the next lending laws.
Low risk competition from Japan Post Bank, the
world’s largest retail bank with ¥200 trillion in deposits, doesn’t
help either.
|
Performance |
|||
|
Japan – selected 9M08 results |
|||
|
Net income (¥bn) |
Y-o-y % change |
Nos of branches |
|
|
Mitsubishi UFJ |
-42 |
n/a |
963 |
|
Resona |
114.6 |
-41.3 |
595 |
|
Mizuho Financial |
-50.5 |
n/a |
515 |
|
Sumitomo Mitsui |
83.4 |
-73.9 |
424 |
|
Sumitomo Bank & Trust |
20.4 |
-45.3 |
84 |
|
Shinsei |
-23.3 |
n/a |
30 |
|
(1) 9M08 is the nine-month period which |
|||
Little short of terrible
A report by US research house
Mercator published last December concluded that while Japan has one
of the highest levels of card penetration in the world, actually
usage of these cards is little short of terrible (see RBI
605).
With close to 800 million credit and debit
cards in circulation at the end of 2007, Japan is one of the
countries with the highest payment card penetration, and Japanese
residents on average have 6.2 credit or debit cards per person. But
the average Japanese resident spent about $30 on their credit and
debit cards in 2007 while the number was close to $180 in the
US.
Unsurprisingly, fiscal 2009 third-quarter and
nine-month results from Japan’s big banks, taken before the truly
dreadful economic conditions will sink in (full-year fiscal 2009
results will be out in April/May) paint a grim picture (see
table above).
“Economic conditions have deteriorated
significantly and are likely to continue deteriorating for the time
being,” the Bank of Japan said in a statement on 19 February.
The assessment follows the release of data
which showed the Japanese economy was in its worst downturn for 35
years.
