Strong liquidity, moderate risk to prop up Gunma’s “weak yet improving” profits

Gunma Bank’s problem loan ratio has improved to 1.6%, from 2.3% previously.

Japan’s Gunma Bank is expected to maintain strong liquidity and moderate asset risk and capitalisation through 2025, according to Moody’s Investors Service.

However, the bank’s profitability will remain weak, although improving, the ratings agency said in its latest rating report for the bank, where it affirmed Gunma Bank’s domestic and currency deposit ratings.

Gunma Bank’s asset risk is expected to remain moderate. As of December 2023, the bank’s problem loan ratio improved to 1.6%, reducing from 2.3% in March 2021. 

This was partly thanks to the bank’s loan monitoring, and for providing consulting support to improve borrowers’ internal credit ratings, Moody’s said.

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Unrealized losses on securities (excluding equity holdings) as a percentage of tangible common equity (TCE) was moderate at 8.5% as of December.Unrealized gains on equity, which was 10.9% of TCE as of December 2023, can help offset the negative impact.

The bank has also proactively reduced the interest rate sensitivity of its bond holdings by selling Japanese government bonds and shortening the bond duration in the first half of the fiscal year ending March 2024.

Liquidity is strong, supported by a solid deposit franchise. The bank makes up 38% of all deposits in the Gunma Prefecture as of end-2023. Loan to deposit ratio is low at 75%.