Shinhan Bank Japan’s profits to decline, but asset quality stable in 2024

Loan concentration in the real estate investment segment remains a risk.

Shinhan Bank Japan’s (SBJ) profitability will deteriorate over the next 12-18 months given that Japanese banks raise interest rates in long-term deposits, although they remain above peer average, says Moody’s Investors Service.

Asset quality will also remain stable over the same period, Moody’s said in its latest rating action report on the bank.

SBJ's profitability is set to decline somewhat in the next 12-18 months given that Japanese banks are starting to increase interest rates on long-term time deposits.

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SBJ has retained loan concentration in the riskier real estate investment segment.   Moody's regards real estate investment loans as riskier than owner-occupied housing loans, with the former accounting for most of the bank's real estate lending business.

Despite this, however, SBJ’s problem loan ratio had improved over the last five years, driven by rapid loan growth and strengthened underwriting.

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Moderate capitalization will be maintained, although its risk-weighted assets (RWA) are increasing due to higher than system average loan growth, its strong profitability, no payment of dividends, and the parent's continuous capital injection support its capitalization.

“SBJ's adequate liquidity is backed by its customer deposits, with a low reliance on market funds. However, its deposit franchise is weaker than its domestic peers' because it is less focused on branch deposit operations and relies more on time deposits, which are less sticky than liquid deposits,” Moody’s noted in its report.