Major banks’ return to domestic lending has become increasingly evident, as capital investment and M&A activity gather pace. Meanwhile, intensifying competition for the deposits that provide the funding is creating headwinds for regional banks.
According to reporting by Nikkei, the return to domestic lending by major banks, including the 3 megabanks, has become increasingly evident. Their domestic share expanded to 46.8% in August, marking the first expansion phase since the collapse of Japan’s bubble economy. Improved lending margins and a recovery in demand for funds are behind the trend, while corporate capital investment and M&A activity have picked up.
As of August, domestic loan balances were up 7.9% year on year, with city banks, including those affiliated with Mitsubishi UFJ Financial Group, accounting for a significant share and roughly half of total domestic loan balances. This has increased the relative weight of domestic lending.
While demand for funds is recovering against the backdrop of this return to lending, competition for the deposits that provide the funding is intensifying, creating headwinds for regional financial institutions.
Alongside developments at major domestic banks, the competition for deposits centered on regional banks is expected to affect financial institutions’ funding positions going forward.