News — ChangeLab

The effects of the SVB crisis hit Japanese banks hard, while China's banking sector is benefiting from the demand for credit

The ongoing banking crisis, which began in Western countries, has reached the East and hit Japanese banks. The reason for this sensitivity of the Japanese banking system to the global crisis was that Japanese lenders focused more on buying bonds than lending. Moreover, Japanese banks have long stepped up investments in U.S. government bonds in search of better yields, as the Bank of Japan's easing program has kept local bond yields low.

Japan's top three lenders - Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group - lost more than $20 billion in market value last week, falling 10-12% overall. The performance of Japanese stock indices also showed decline. The Nikkei fell 1.56% to 27,706.07 and the Topix fell 2% to 1,990.60, after hitting 1,987.00 for the first time since March 1.

At the same time, shares of China's big four state banks rose 3-5 percent over the week, increasing their market capitalization by more than $30 billion during trading on the Hong Kong and Shanghai stock exchanges. By contrast, according to experts, the Chinese banking sector in this case benefited from higher demand for credit in a fast-growing economy. Although Chinese banks have been less exposed to the switch to investing in securities, the recent drop in interest rates has also contributed to the growth of their bond holdings.

However, many Japanese experts note that regional lenders will be able to overcome all losses on their foreign bond portfolios thanks to strong capital reserves and a significant improvement in the asset quality of Japanese banks. Such strong reserves, combined with the deposit base significantly distinguish dozens of regional lenders in Japan from the failed SVB bank. SMBC Nikko Securities analysts estimate the unrealized losses of registered Japanese regional banks on foreign bonds at $10.6 billion. However, even if the yield on 10-year Japanese government bonds increases to 1%, the unrealized losses on yen bonds will increase to about 4 trillion yen