JAPAN BANKING INDUSTRY

Japan Banking Industry



Japan Commercial Banking SWOT

Strengths

Japan's targeted ratio of non-performing loans (NPL) to all loans of 4% has been largely achieved. The major banks now have NPL rates of below 2% of client loans. Banks' profitability is forecasted to continue improving. Japan has a highly developed financial system supported by high per capita levels of deposits. The country is less exposed to changes in global regulation and sovereign risks in Southern Europe.

Weaknesses

Banks are experiencing low growth in assets, loans and deposits. Banks are losing market share to competitors including corporate and consumer credit companies. Smaller banks such as Shinsei are also improving their market share at the expense of larger banks, further fragmenting the market. Fragmentation within the banking sector is a hindrance, despite the massive mergers of the past. Deposits per capita are at levels from which they are almost certain to fall, as Japan's ageing consumer loosens the purse strings.

Opportunities

The ultra-low interest rate environment offers opportunities in non-bank lending. Investment banking and, in particular, mutual funds are likely to experience growth. Greater co-operation and new capital tie-ups are emerging between Japanese and Chinese banks. This is expected to continue and will enhance confidence in the Japanese banking system.

Threats

Price deflation remains a possibility despite government assurances. The potential re-kindling of old rivalries with China could introduce new regional tensions, together with pressure to increase defence spending. The rising yen is putting a serious brake on Japanese exports, with losses reported by flag-ship companies such as Sony Corporation, and potential instability associated with downsizing. The banking sector as a whole is considerably exposed to the government's rapidly deteriorating public balance sheet.

Japan Economic SWOT

Strengths

Japan is the one of the world's largest economies, with a population of 127mn. As such, Japan has a large, wealthy, and sophisticated domestic market. Japan has well-developed and hi-tech manufacturing and services sectors, with strong advantages in key areas such as electronics and heavy engineering.

Weaknesses

The economy is hampered by excessive regulation, state interventionism, and a desire to protect politically influential special interest groups, all of which increase business costs. Japan's population is shrinking, and it has one of the highest proportions of citizens aged over 65 among the developed economies, placing a large funding burden on the pension system.

Opportunities

Japan stands to benefit from rising demand from emerging markets - especially China and India - which can compensate for its own weak demand. The DPJ's social policies could eventually set the scene for a rise in private consumption and birth rates, although this could be years away. Future governments could conceivably introduce economic reforms needed to raise Japan's long-term potential growth rate.

Threats

Japan will remain dependent on exports as a driver of growth, and this means that its prosperity is dependent on demand from the US and increasingly China. Japan must act quickly to reduce its fiscal deficit and national debt burden, the latter of which is already in the region of 200% of GDP. Debt servicing costs now constitute 25% of the ...