Banks in Japan already have their “beards soaked.” The local financial system is facing a situation that could be classified, at least, as complicated and which is occurring on two fronts. On the one hand, institutions such as Norinchukin Bank, the country's fifth largest bank, recently announced that it will sell more than $63 billion in bonds from the United States and Europe. The reason is to stop the billion-dollar losses that have left them and which are estimated to rise, by the end of 2024, to 9.5 billion dollars. “We plan to sell low-yielding (foreign) bonds worth 10 trillion yen ($63 billion) or more. The bank recognized the need to drastically change its portfolio management,” said Kazuto Oku, CEO of the financial institution. These deteriorations in their balance sheets occur due to the following: for a long time the bank acquired the bonds (public debt issued by the United States) with an interest rate that allowed them to be held without facing risks. However, and given the high inflation experienced by the North American country, the Federal Reserve increased interest rates as a containment measure, as reported by BitcoinDynamic. The consequence has been a fall in the value of bonds, which triggered the banking crisis that occurred in the United States in March 2023 with the Silvergate Bank bankruptcy and the intervention of Silicon Valley Bank and Signature. Oku himself admitted the influence of this increase by saying that the bank will reduce “the risk of (sovereign) interest rates and we will diversify into assets that assume corporate and individual credit risk.”
Interest rates have grown progressively in the US since 2020. Source:Datamacro.com This decision, to massively sell bonds, could spread to other banks in Japan that would also be facing large losses, which could generate a crisis. of the sector. In a recent publication, the co-founder of the BitMex exchange, Arthur Hayes, referred to the situation of Japanese banks and explained, based on a survey carried out by the International Monetary Fund (IMF), that the financial institutions of that country became With some “$850 billion in foreign bonds through 2022,” more than half of that amount would be U.S. bonds. The data shows the magnitude of the situation faced not only by Norinchukin Bank, but also by the rest of the local banks. The complicated scenario for Japanese banks is occurring just when in the United States there are more than 60 banks with operational weaknesses that have been listed by the Federal Deposit Insurance Corporation (FDIC) for financial problems, all derived from the effects of the inflation.
Exodus of deposits in traditional banks
As if the above were not enough, more than 60 regional banks in Japan have a second complicated front: the threat of an exodus of deposits due to new fintech digital competitors. According to a report from the Financial Times, there are lenders such as Sony Bank that have begun to offer their clients an annualized interest rate of 10.52%, an unusual rate for the local market. For the media outlet, “Japan's online banks have recorded accelerated growth in deposits and account openings. So far in 2024, Rakuten Bank, for example, has opened about 800,000 accounts.” One of the aspects that would be playing against regional banks and their traditional financial services is that, according to analysts, elderly Japanese are increasingly opening more online accounts with fintech companies with the help of their adult children. . This is undoubtedly a threat to financial institutions that have a portfolio of older clients. What is happening in the Japanese banking sector has international repercussions, since it is one of the five largest economies in the world. If the situation of banks in the United States is added to that, then the banking issue could heat up even more, which would increase the risk of bankruptcy declarations as were recorded in 2023 in the country of the stars and stripes.