What drove 17 shinkin banks into the red: ¥3 trillion in unrealized bond losses hit even as core business remained solid

Following the results for the fiscal year ending March 2026, a structural situation has emerged in which many shinkin banks nationwide are seeing core operating profit from their main business trend higher, while expanding unrealized losses on securities holdings are weighing on final profit or loss. The Bank of Japan’s interest-rate hikes drove up valuation losses on long-term government bonds and local government bonds, resulting in a succession of losses on sales.

As long-term interest rates rose, the prices of the government bonds and local government bonds held by Tajima Shinkin declined, and the bank recognized ¥22 billion in losses on sales in its results for the fiscal year ending March 2026. Among 27 shinkin banks in the Kyushu and Okinawa region, total losses on government bond sales also increased substantially from the previous fiscal year to ¥22.7 billion, and some financial institutions reported losses during the same period.

While shinkin banks consider negotiating higher lending rates for small and midsize businesses, tightening screening standards and using alternative financing such as factoring, some observers have pointed out that the underlying earnings power of their core business itself is improving. As indicated by the Financial Services Agency’s inspection policy, expanding unrealized losses are recognized not only as an issue of individual institutions’ management capabilities but as a challenge for the industry as a whole.

Complementary financial services such as FinTech and online lending are expected to help meet short-term funding needs, but are not viewed as fully replacing the locally rooted credit function.