Japan's Banks Post Record Profits Yet Warn of Funding Strain
- Japanese banks are posting record profits yet voices on the ground say funds are short.
- Rate hikes and rising loans lift revenue, but deposits lag loan growth.
- The stable funding ratio is slipping, pushing banks to diversify beyond deposits.
- Balancing profit growth with soundness is the sector's shared challenge.
- For investors, record profits mask a rising funding-cost risk beneath the headline.
Japan's banks face a paradox: record profits on paper, yet complaints of 'not enough money' on the ground. As the BOJ exits negative rates, lending margins have returned and loan balances are swelling, lifting revenue. But deposits, the cheapest and stickiest funding source, are not keeping pace.
When loans outrun deposits, the stable funding ratio, a gauge of how much lending rests on reliable money, deteriorates. Banks then turn to bonds and market funding to plug the gap, raising costs and leaving them more fragile if liquidity tightens. Investors should look past the record-profit headline to deposit momentum, the stable funding ratio, and the share of market funding. Two banks with similar EPS can carry very different risk depending on where their money comes from.