FIRST Cost-cutting efforts through digitalisation will start to translate into declines in base operating expenses
Loan demand increased sharply because of the pandemic in the first half of fiscal 2020
Profits of Japan’s megabanks expected to rise in 2022
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CONSUMER CREDIT
he profitability of Japan’s three megabanks is expected to further increase over the next 12 to 18 months on the back of lower credit costs, according to a report by Moody’s Japan K.K. The net income of Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, and Mizuho Financial Group jumped 95%, 68.8%, and 78.9%, respectively over the first six
months of the fiscal year ending March 2022 compared to the previous fiscal year. Credit costs declined after a spike due to the coronavirus pandemic. Whilst the nonperforming loan (NPL) ratios of all three banks remained almost unchanged from the end of March 2021, these are well below the 10-year average of 1.4%. “We expect the asset risks of
Japan’s three megabanks to remain low in fiscal 2021, given that the global economy will recover in 2021-2022, and the banks’ conservative approach,” says Tetsuya Yamamoto, a Moody’s Vice President and Senior Credit Officer. Banks’ cost-cutting efforts through digitalisation will start to translate into declines in base operating expenses, Yamamoto added. However, domestic net interest margins will remain under pressure because of excess liquidity and fierce competition amongst banks. Notably, whilst Mizuho’s credit risk is one of the lowest amongst rated banks in Japan, Mizuho has relatively high operational risks, as highlighted by a series of system glitches in 2021, Yamamoto said. Overall, Moody’s expects all three banks’ capital ratios to be stable as they steadily accumulate retained earnings, whilst controlling growth in risk-weighted assets (RWAs). “Loan demand increased sharply because of the pandemic in the first half of fiscal 2020 but it has eased. As such, RWA growth at the three banks has normalised and will not change much from their current levels,” Moody’s wrote. At the same time, banks’ liquidity will remain strong, backed by large amounts of cash and highly liquid securities holdings, the ratings agency added.
HONG KONG TO LAUNCH OWN DIGITAL CURRENCY: FINANCIAL SECRETARY
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ong Kong is looking to join the digital currency race, with Financial Secretary Paul Chan confirming that the city is looking to issue its own central bank digital currency (CBDC). “The Hong Kong Monetary Authority (HKMA) is also studying the prospect of issuing our own central bank digital currencies, CBDCs, for retail use in Hong Kong, and I look forward to sharing the findings in the coming months,” Chan told attendees of the Hong Kong Fintech Week 2021, for which he delivered the welcoming remarks. The HKMA recently released a whitepaper that studies the technical and regulatory aspects involved in issuing an e-HKD. It first announced its intention to study CDBDs as part of its “Fintech 2025” roadmap. First unveiled in June, the roadmap seeks to
strengthen the city’s fintech sector and push “all banks to go fintech.” “The HKMA has been working with the Bank for International Settlements Innovation Hub Hong Kong Centre to research retail CBDCs and will begin a study on e-HKD to understand its use cases, benefits, and related risks,” the financial regulator stated in a press release. Hong Kong’s regulator is collaborating with the People’s Bank of China (PBOC) to test e-CNY in the city to enhance cross-boundary payment services. The HKMA and PBOC recently signed a memorandum of understanding for the Greater Bay Area FinTech supervisory cooperation. The new cooperation will reportedly allow financial institutions, tech companies and innovators from Hong Kong to test cost boundary financial applications via a one-stop sandbox, Chan said.
HKMA is studying the prospect of issuing its own CBDCs for retail use in Hong Kong
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