Mebuki's profits to improve but unrealised losses to rise

Its problem loans ratio is stable due to strong borrower quality.

Mebuki Finacial Group's profitability (Mebuki FG) is set to slowly improve thanks to Japan’s higher interest rates, according to Moody's Japan K.K. report.

“Given its market rate linked loans as a percentage of its total loans is significantly lower than megabanks', and its higher credit costs” Moody said.

However, a rise in domestic rates may increase the group’s unrealised losses in its domestic bond portfolio.

Unrealised gains on equity may help lessen this negative impact, with Mebuki FG’s tangible common equity (TCE) recorded at 5.6% in end-2023, whilst its unrealised gains comprised 14.4% of its TCE.

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“The group's proactive efforts to reduce the interest rate sensitivity of its bond holdings by selling domestic and foreign bonds and shortening of the bond duration will also help limit the impact as domestic rates rise,” Moody added.

In terms of liquidity, Mebuki FG is supported by its solid deposit franchise in the home markets of Ibaraki and Tochigi Prefectures and its loan-to-deposit ratio of 71%.

Its problem loan ratio was around 1.5% over the past five years, reflecting stability due to its strong borrower quality.

Moody expects the group’s TCE ratio to decline from 12.9% due to an increase of risk-weighted assets (RWA) and returns to shareholders to improve the price-to-book value ratio.

However, the group is also predicted to maintain its TCE ratio above 11% due to its consistent internal capital generation.