Ja­pan Post Bank hurt­ing most from BoJ’s neg­a­tive rates

The Pak Banker - - COMPANIES/BOSS -

Ja­pan Post Bank Co. stands to lose the most from the Bank of Ja­pan's de­ci­sion to in­tro­duce neg­a­tive in­ter­est rates as plum­met­ing bond yields un­der­score its re­liance on the coun­try's debt for in­come. The postal bank, one of the big­gest hold­ers of Ja­panese govern­ment bonds, gets more than 90 per­cent of its profit from in­ter­est in­come, ac­cord­ing to Shinichiro Naka­mura, a Tokyo-based se­nior an­a­lyst at SMBC Nikko Se­cu­ri­ties Inc. He sees the com­pany's earn­ings tak­ing a big­ger hit from the BOJ's ac­tion than the na­tion's three so-called mega­banks, which un­like Ja­pan Post have been ex­pand­ing abroad and di­ver­si­fy­ing into fee busi­nesses.

"Do­mes­tic yields will de­te­ri­o­rate due to the in­tro­duc­tion of neg­a­tive in­ter­est rates," Naka­mura said by phone. "And the larger the pro­por­tion of do­mes­tic in­ter­est in­come in profit, the larger the neg­a­tive im­pact."

Yields on Ja­pan's bench­mark 10-year sov­er­eign notes fell below zero for the first time, touch­ing a low of mi­nus 0.035 per­cent Tues­day in Tokyo. Ja­pan Post Bank, which went pub­lic as part of a 1.4 tril­lion yen ($12 bil­lion) ini­tial pub­lic of­fer­ing in Novem­ber, has also parked al­most a fifth of its as­sets at the BOJ. Cen­tral bank gov­er­nor Haruhiko Kuroda last month an­nounced the sur­prise de­ci­sion to charge 0.1 per­cent in­ter­est on some of banks' re­serves.

Neg­a­tive rates could cut Ja­pan Post Bank's or­di­nary profit by 20 per­cent, based on as­sump­tions for earn­ings in the year end­ing March, Naka­mura wrote in a re­port on Feb 1. That com­pares with about 10 per­cent for re­gional banks and 5 per­cent for Mit­subishi UFJ Fi­nan­cial Group Inc. and the other mega­banks, ac­cord­ing to Naka­mura's es­ti­mates.

"The banks that will be most af­fected will be those that have lower di­ver­si­fi­ca­tion of earn­ings," said Mac Sal­man, head of re­search on Ja­panese fi­nan­cial firms at Jef­feries Group LLC in Tokyo. "In many ways, what's hap­pened with neg­a­tive in­ter­est-rate pol­icy val­i­dates banks' strate­gies of ag­gres­sive di­ver­si­fi­ca­tion away from do­mes­tic core bank­ing busi­ness."

Shares of the postal bank have tum­bled 20 per­cent since the BOJ's an­nounce­ment on Jan. 29, and the Topix Banks In­dex has lost 21 per­cent. The stock has dropped 13 per­cent since it listed in Novem­ber as part of the na­tion's big­gest pri­va­ti­za­tion deal this cen­tury, deal­ing a blow to in­vestors -- mostly Ja­panese in­di­vid­u­als -- who flocked to the IPO.

Satoshi Ya­mada, a spokesman for Toky­obased Ja­pan Post Bank, de­clined to com­ment. Since its list­ing, the postal bank has said it will di­ver­sify its 205 tril­lion yen of in­vest­ments away from JGBs to im­prove re­turns. It has been adding riskier as­sets in­clud­ing eq­ui­ties and for­eign bonds to a so-called satel­lite port­fo­lio that has risen to 56 tril­lion yen as of Septem­ber.

Even af­ter trim­ming its JGB hold­ingsto a record-low 92.8 tril­lion yen, the as­sets still made up about 45 per­cent of its port­fo­lio in Septem­ber. Un­like other pri­vate-sec­tor banks, Ja­pan Post Bank's al­ter­na­tives are lim­ited be­cause its abil­ity to lend is re­stricted. And un­like the three mega­banks -- MUFG, Su­mit­omo Mit­sui Fi­nan­cial Group Inc. and Mizuho Fi­nan­cial Group Inc. -- it gets all of its rev­enue from home.

While Ja­pan Post Bank has steered some of the funds made avail­able from shed­ding its JGB hold­ings into in­stru­ments such as for­eign bonds, it has also put a por­tion at the cen­tral bank, earn­ing 0.1 per­cent in­ter­est. De­posits at the BOJ and other cash-equiv­a­lent as­sets have risen to about 19 per­cent of the port­fo­lio as of Septem­ber. With the new eas­ing, the com­pany will have to pay the BOJ 0.1 per­cent on ad­di­tional re­serves.

Ja­pan Post Bank, the na­tion's big­gest holder of cus­tomer de­posits, may also face pres­sure to di­ver­sify in­vest­ments be­cause of an in­crease in the amount of cash that savers are al­lowed to leave at the com­pany.

Hasan A. Bil­grami CEO Bank Is­lami and Raza Pirb­hai CEO KFC Pak­istan dur­ing an ac­cord sign­ing cer­e­mony.

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