Financial System Report Annex Series

FSR A
inancial
ystem

eport

nnex

Financial Results of Japan’s Banks
for Fiscal 2017

FINANCIAL SYSTEM AND BANK EXAMINATION DEPARTMENTBANK OF JAPANSEPTEMBER 2018

The total of major banks, regional banks, and shinkin banks covered in this Report is as follows (as at
March 31, 2018).
Major banks comprise the following 10 banks: Mizuho Bank; The Bank of Tokyo-Mitsubishi UFJ (renamed
as MUFG Bank); Sumitomo Mitsui Banking Corporation; Resona Bank; Saitama Resona Bank; Mitsubishi
UFJ Trust and Banking Corporation; Mizuho Trust and Banking Company; Sumitomo Mitsui Trust Bank;
Shinsei Bank; and Aozora Bank. Regional banks comprise the 64 member banks of the Regional Banks
Association of Japan (Regional banks I) and the 41 member banks of the Second Association of Regional
Banks (Regional banks II). Shinkin banks are the 253 shinkin banks that hold current accounts at the Bankof Japan.
Please contact the Financial System and Bank Examination Department at the e-mail address below torequest permission in advance when reproducing or copying the contents of this Report for commercial
purposes.
Please credit the source when quoting, reproducing, or copying the contents of this Report for
non-commercial purposes.
Financial Institutions Divisions I and II
Financial System and Bank Examination Department, Bank of Japan
post.fsbe2@boj.or.jp

Background
The Bank of Japan issues the Financial System Report semi-annually with theobjectives of assessing the stability of Japan's financial system from amacroprudential perspective and enhancing communication with concerned
parties with respect to financial stability issues. The Report provides a regular andcomprehensive assessment of the financial system.
The Financial System Report Annex Series supplements the Financial System
Report by providing more detailed analysis and insight into a selected topic on an
ad hoc basis. This paper covers the financial results of Japan's banks for fiscal
2017.

Abstract
The characteristics of the financial results of Japan's banks for fiscal 2017 aresummarized in the three paragraphs below.
First, net income increased for major banks, while that for regional banks andshinkin banks showed a smaller decline than in the previous year. For all types ofbanks, factors such as the shrinking domestic lending margins and the increased
losses on sales of U.S. Treasuries pushed down net income. On the other hand,net income was pushed up mainly by low credit costs and the increased gains
from sales of stocks.
Second, pre-provision net revenue (PPNR) (excluding trading income), whichshow core profitability, were more or less unchanged from the previous year forregional banks, while they continued to decrease for major banks and shinkinbanks. All types of banks saw a decline in net interest income through theshrinking domestic lending margins. Regional banks and shinkin banks, both ofwhich are highly dependent on net interest income, have demonstrated
increasing heterogeneity in core profitability among financial institutions.
Third, financial institutions have maintained their financial soundness on thewhole. The amount of capital continued to increase mainly at major banks, due tothe accumulation of retained earnings.

iContents
I. Outline of Financial Results of Japan's Banks for Fiscal 2017
A. Profits and Losses
B. Profit Levels from a Long-Term Perspective
C. Balance Sheets

II. Financial Results of Japan's Major Banks and Regional Banks for
Fiscal 2017
A. Core Profitability
1. Net Interest Income
2. Interest Rate Spreads on Loans and Loans Outstanding
3. Interest Rate Spreads on Securities
4. Net Non-Interest Income
5. General and Administrative Expenses
B. Realized and Unrealized Gains/Losses on Securities Holdings
1. Realized Gains/Losses on Securities Holdings
2. Unrealized Gains/Losses on Securities Holdings
C. Credit Costs and Non-Performing Loans
1. Credit Costs
2. Non-Performing Loans
3. Loan-Loss Provisions
D. Capital Adequacy Ratio

Box 1: Comparison between the consolidated and non-consolidated financial
results of major banksiiIII. Financial Results of Japan's Shinkin Banks for Fiscal 2017
A. Core Profitability
1. Net Interest Income
2. Interest Rate Spreads on Loans and Loans Outstanding
3. Interest Rate Spreads on Securities
4. Net Non-Interest Income
5. General and Administrative Expenses
B. Realized and Unrealized Gains/Losses on Securities Holdings
1. Realized Gains/Losses on Securities Holdings
2. Unrealized Gains/Losses on Securities Holdings
C. Credit Costs and Non-Performing Loans
1. Credit Costs
2. Non-Performing Loans
3. Loan-Loss Provisions
D. Capital Adequacy Ratio

Box 2: Heterogeneity in core profitability among regional financial institutions

Reference: Developments in Financial Markets
Glossaryiii

I. Outline of Financial Results of Japan's Banks for Fiscal 20171
A. Profits and Losses
Net income for fiscal 2017 at major financial groups was about 2.8 trillion yen, increasing by 6.6
percent from the previous year. The main factors were (1) the improvement in credit costs backed
by the reversals of loan-loss provisions for domestic exposures to some large companies andfavorable economic conditions, and (2) the widening of the extent to which realized gains
exceeded losses on stockholdings, due mainly to sales of strategic stockholdings. These factors
more than offset a continued decline in net interest income through the shrinking domestic lending
margins.
Meanwhile, net income for fiscal 2017 at major banks (on a non-consolidated basis) was about 2.1
trillion yen, an increase of 6.1 percent from the previous year. Compared to that of major financialgroups, the decline in net interest income exerted stronger downward pressure on net income. For
details regarding the comparison between the consolidated and non-consolidated financial resultsof major banks, see Box 1.
I-A-1: Main profit and loss items at major financial groups and banks
100mil.yen,%
Major Financial Groups
FY2017y/y chg.

Major Banks (non-consolidated)
y/y % chg.

FY2017y/y chg.

y/y % chg.

Net interest income

48,306-1,852-3.7

34,324-3,563-9.4

Net non-interest income

54,784+846+1.6

24,106-416-1.7

General and administrative expenses-68,901

-648

+0.9

-37,322

+145

-0.4

――

21,108-3,835

-15.4

――

-122

-1,114

6,119+1,017――

2,939+4,542――――(-10bp)(-15bp)――PPNR (excluding trading income)――――

Realized gains/losses on bondholdings-94-1,277

Realized gains/losses on stockholdings

5,596

+727

53

+4,044Credit costs(Credit cost ratio)
Others

――

――

+14.9

――
+19.9

-881

+1,127-56.1-3,067

+805

-20.8

Net incom e before incom e taxes

38,862+2,967+8.3

26,977+1,415+5.5

Tax-related expenses-8,468-639+8.2-6,056-215+3.7

Net incom e27,853+1,713+6.6

20,922+1,200+6.1

Note: 1. Regarding credit costs, negative numbers represent a rise in costs while positive numbers represent an increase
in reversals.
2. Some items for which there exist no data based on financial groups are calculated using banks' data on a
non-consolidated basis.
3. PPNR stands for pre-provision net revenue.
Source: Published accounts of each financial group; BOJ.

1

Figures provided in Chapters I and II are calculated on a non-consolidated basis unless otherwise noted.
1

Net income for fiscal 2017 at regional banks was about 0.9 trillion yen, a 2.4 percent decline fromthe previous year. While net interest income was on a declining trend due to the shrinking
domestic lending margins, the decline in net income was mainly attributed to larger realized losses
on bondholdings incurred by the losses on sales of U.S. Treasuries. On the other hand, the level ofnet income was supported by the reduction in general and administrative expenses as well as theincrease in the amount to which realized gains exceeded losses on stockholdings.
Net income at shinkin banks was about 0.3 trillion yen, a decrease of 4.6 percent from theprevious year. This was attributed to a decline in net interest income due to the shrinking lending
margins and a decrease in the amount to which realized gains exceeded losses on bondholdings.
I-A-2: Main profit and loss items at regional banks and shinkin banks
100mil.yen,%
Shinkin banks

Regional banks (non-consolidated)
FY2017y/y chg.

y/y % chg.

FY2017y/y chg.

y/y % chg.

Net interest income

37,359-73-0.2

15,444-137-0.9

Net non-interest income

5,362

-80

-1.5

645

-95

-12.8

General and administrative expenses-29,792

+353

-1.2

-13,180

+180

-1.3

PPNR (excluding trading income)

12,929

+200

+1.6

2,909

-52

-1.7

Realized gains/losses on bondholdings-1,186-820+223.8

422

-378

-47.3

Realized gains/losses on stockholdings

2,601

+506

+24.1

539

+201

+59.4

Credit costs-1,050

-521

+98.5

-210

+10

-4.7

(Credit cost ratio)(4bp)(+2bp)

+91.2

(3bp)

(-0bp)-7.0

Others

-168

+434

-72.1

-148

+88

-37.4

Net incom e before incom e taxes

13,125

-201

-1.5

3,512

-130

-3.6

Tax-related expenses-3,702

-31

+0.8

-872

+1

-0.2

Net incom e

9,423

-233

-2.4

2,640

-129

-4.6

Note: Regarding credit costs, negative numbers represent a rise in costs while positive numbers represent an increase
in reversals.
Source: BOJ.

2

B. Profit Levels from a Long-Term Perspective
Net income for fiscal 2017 for major banks increased for the first time in four years on aconsolidated basis and two years on a non-consolidated basis. Net income for regional banks andshinkin banks declined, but to a lesser extent. From a longer-term perspective, the net income
levels for all types of banks, which were maintained at around the average of the past several
years, bear comparison with those before the failure of Lehman Brothers and even before thebursting of Japan's bubble economy in the early 1990s.

I-B-1: Net income
Major financial groups

5tril.yen

Major banks (non-consolidated)
4 tril.yen

Second half of the fiscal year
First half of the fiscal year
Throughout the fiscal year

4

Second half of the fiscal year
First half of the fiscal year
Throughout the fiscal year

2

3
2

0

1
-2

0
-1

-4

-2
-3
FY 06 07 08 09 10 11 12 13 14 15 16 17-6
FY 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17

Regional banks
2

Shinkin banks

tril.yen

0.4

Second half of the fiscal year
First half of the fiscal year
Throughout the fiscal year

tril.yen

0.3
0.2

1

0.1
0.0

0

-0.1
-0.2

-1

-0.3
-0.4

Throughout the fiscal year
-0.5
FY 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17-2
FY83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17
Source: BOJ.

3

With regard to the movements of core profitability, pre-provision net revenue (PPNR) (excluding
trading income) at major banks for fiscal 2017 marked a larger decline of 15.4 percent, decreasing
for the third consecutive year, mainly because of a decline in domestic net interest income. At
regional banks, PPNR (excluding trading income) showed a slight increase of 1.6 percent from theprevious year, due in part to the reduction in general and administrative expenses. At shinkinbanks, such profits continued to decline, although they marked a smaller decline of 1.7 percent
from the previous year. Meanwhile, regional banks and shinkin banks have demonstrated
increasing heterogeneity in core profitability among financial institutions. See Box 2 for further
details.
I-B-2: PPNR (excluding trading income)
Major banks
4.5

tril.yen

4.0
3.5
3.0

Shinkin banks

Regional banks
Second halfof the fiscal
yearFirst half ofthe fiscal
year

2.5
2.0

2.5

Second halfof the fiscal
yearFirst half ofthe fiscal
year

tril.yen

2.0

1.0

tril.yenThroughout
the fiscal year

0.8

1.5

0.6

1.0

0.4

0.5

0.2

0.0
FY 89 93 97 01 05 09 13 17

0.0
FY 89 93 97 01 05 09 13 17

1.5
1.0
0.5
0.0
FY 89 93 97 01 05 09 13 17
Source: BOJ.

4

C. Balance Sheets
Looking at developments in balance sheets for fiscal 2017 at major banks, total assets increased
by 24.5 trillion yen as cash and due from banks, including current account balances at the Bank ofJapan, and securities increased. On the liability side, the main increases were in deposits in thedomestic business sector and other liabilities, including market funding such as repos and callmoney.
I-C-1: Main balance sheet items of major banks
tril.yen
End-Mar.
2018
Loans and bills
discounted

y/y chg.

Change fromend-Sep. 2017

End-Mar.
2018

304.1

-2.9

-2.1 Deposits + NCD

210.6

-0.6

+2.8

93.6

-2.3

-4.9

Securities

130.3

+4.8

JGBs

50.7

+1.3

+5.8

Stocks17.8

Foreignsecurities

y/y chg.

Change f rom
end-Sep. 2017

503.2

+12.7

+6.7

404.8

+12.3

+10.5

98.4

+0.4

-3.8

+5.2 Loans from BOJ

26.0

-1.3

-2.1

Due to trust
accounts

15.8

+1.6

+2.3

+0.7

-0.0 Other liabilities

130.4

+10.2

+2.6

43.7

+0.4

-2.7 Total liabilities

675.4

+23.2

+9.5

Cash and duefrom banks

188.3

+19.5

+7.1 Total net assets

34.3

+1.3

+0.2

Other assets

87.0

+3.1

-0.6

Retainedearnings

12.3

+1.0

+0.4

Total assets

709.7

+24.5

+9.7

Net unrealized
gains/losses
on securities

6.2

+0.5

-0.1

Domestic
business
sectorInternational
business
sectorDomestic
business
sectorInternational
business
sector

Source: BOJ.

Regarding total assets at regional banks, they increased by 10.6 trillion yen as loans as well as
cash and due from banks, including current account balances at the Bank of Japan, increased
while securities decreased. On the liability side, the main increase was in deposits.
I-C-2: Main balance sheet items of regional banks
tril.yen
End-Mar.
2018

y/y chg.

Change fromend-Sep. 2017

End-Mar.
2018

Loans and bills
discounted

253.4

+9.5

+5.5 Deposits + NCD

Securities

85.6

-6.1

-4.1

JGBs

24.9

Cash and duefrom banks

y/y chg.

Change fromend-Sep. 2017

340.6

+8.1

+4.8

Current
deposits

178.4

+11.6

+8.2

-5.5

-2.6 Other liabilities

33.5

+1.5

+1.7

45.8

+5.9

+4.8 Total liabilities

374.1

+9.6

+6.4

Other assets

11.8

+1.4

+0.3 Total net assets

22.5

+1.0

+0.1

Total assets

396.6

+10.6

+6.6

3.9

+0.3

-0.1

Net unrealized
gains/losses
on securities

Source: BOJ.

5

With regard to shinkin banks, total assets increased by 3.5 trillion yen as loans as well as cash anddue from banks increased. On the liability side, the main increase was in deposits.
I-C-3: Main balance sheet items of shinkin banks
End-Mar.
2018

tril.yen
End-Mar.
2018

y/y chg.

y/y chg.

Loans and bills
discounted

70.7+1.8 Deposits + NCD

140.4

+3.1

Securities

42.4

-0.0

51.3

+3.2

7.7

-0.9 Other liabilities

4.4

+0.2

Cash and duefrom banks

37.7+1.5 Total liabilities

144.8

+3.4

Other assets

3.0+0.2 Total net assets

8.9

+0.1

Total assets

153.7

0.7

-0.1

JGBs

Current deposits

Net unrealized
gains/losses
on securities+3.5

Source: BOJ.

6

II. Financial Results of Japan's Major Banks and Regional Banks for
Fiscal 2017
This chapter analyzes banks' core profitability (net interest income, net non-interest income, andgeneral and administrative expenses), credit costs and non-performing loans, as well as capital
adequacy ratios. The financial results of shinkin banks are analyzed in Chapter III.

A. Core Profitability
1. Net Interest Income
Net interest income at major banks for fiscal 2017 decreased by 9.4 percent from the previous
year. Net interest income in the international business sector was more or less unchanged fromthe previous year, marking 0.3 percent growth, while such income in the domestic business sector
decreased by 13.4 percent from the previous year as interest rates on loans and yields on
Japanese government bonds (JGBs) continued to decline.
Net interest income at regional banks for fiscal 2017 was more or less unchanged from theprevious year, marking 0.2 percent decline. Loan-related income continued to decrease due tonarrowing interest rate spreads on loans, while securities-related income increased owing to therise in stock yields and the increasing share of investment trusts with wide profit margins.
II-A-1: Net interest income
Major banks
6tril.yen

5

OthersSecurities-related
Loan-related
Net interest income

tril.yen

3.0
2.5

4

2.0

3

1.5

2

1.0

1

0.5

0

0.0

tril.yen
3.0
2.5
2.0

International
business sector
Domestic
business sector
Total

1.5
1.0

-1
FY 01 03 05 07 09 11 13 15 17

-0.5
15
16
17
(1H) (1H) (1H)

0.5
0.0
FY 15
16
17
(1H) (1H) (1H)

Categorized by domestic
and international business

Regional banks
6tril.yentril.yen

3.0

5

2.5

4

2.0

3

1.5

2

1.0

1

0.5

0

0.0

sectorNote: Loan-related = (average loans outstanding) *(interest rate spreads on loans).
Securities-related = (average outstanding-1
FY 01 03 05 07 09 11 13 15 17

-0.5
15
16
17
(1H) (1H) (1H)

7securities holdings) * (interest rate spreads
on securities).
Source: BOJ.

2. Interest Rate Spreads on Loans and Loans Outstanding(1) Interest Rate Spreads on Loans
Interest rate spreads on loans in the domestic business sector continued to narrow at both majorbanks and regional banks as the decline in interest rates on loans exceeded the decline in funding
rates under the prolonged low interest rate environment.
Interest rate spreads on loans in the international business sector at major banks were more orless unchanged as both interest rates on loans and funding increased, reflecting policy rate hikes
in the United States.
II-A-2: Interest rate spreads on loans
Major banks (domestic business sector)
Funding cost rate
Interest rate on loans
Interest rate spreads on loans

2.5 %

%

Regional banks (domestic business sector)
%

% 2.5

2.5

2.5

2.0

2.0

2.0

1.5

1.5

1.5

1.5

1.0

1.0

1.0

1.0

0.5

0.5

0.5

0.5

0.0

0.0

0.0

0.0

-0.5
FY 05 07 09 11 13 15 17 151617(1H) (1H) (1H)

-0.5

-0.5
FY 05 07 09 11 13 15 17

2.0

-0.5
15
16
17
(1H) (1H) (1H)

Major banks (international business sector)
6 %

%

3.0

5

2.5

4

2.0

3

1.5

2

1.0

1

0.5

0

0.0

-1

-0.5

-2

-1.0

-3

-1.5

-4
FY 07

-2.0
09

11

13

15

16
17
17 15
(1H) (1H) (1H)

Note: 1. In calculating the interest rate spreads, interest expenses on interest rate swaps are deducted fromfunding costs.
2. Semiannual data are annualized.
Source: BOJ.

8

(2) Loans Outstanding by Lending Rate
Looking at developments in loans outstanding by lending rate (yen loans in domestic branches) atboth major banks and regional banks, those with low lending rates continued to increase.

II-A-3: Changes in loans outstanding by lending rate(from the end of March 2014 to the end of March 2018)
Major banks

Regional banks

End of March 2017→End of March 201825

tril.yen

End of March 2016→End of March 2017
End of March 2015→End of March 201625

tril.yen

20

20

End of March 2014→End of March 201515
10

End of March 2014→End of March 2018 total15
10

5

5

0

0

-5

-5

-10

-10
-15

-15

less
0.501.001.502.002.50than 0.250.751.251.752.25- %
0.25

less
0.501.001.502.002.50than 0.250.751.251.752.25- %0.25

Note: The data are for yen loans outstanding in domestic branches (excluding loans to the financial sector) based on theamount outstanding at month-end.
Source: BOJ.

II-A-4: Changes in proportion of loans outstanding by lending rate(from the end of March 2014 to the end of March 2018)
Major banks
25 %End of March 2018

Regional banks
20 %End of March 201720

End of March 2016
End of March 201515

15

End of March 2014

10
10

5

5
0

0
less
0.501.001.502.002.50than 0.250.751.251.752.25- %
0.25

less
0.501.001.502.002.50than 0.250.751.251.752.25- %0.25

Note: The data are for yen loans outstanding in domestic branches (excluding loans to the financial sector) based on theamount outstanding at month-end.
Source: BOJ.

9

(3) Factors behind Changes in Profits from Lending Activities
Looking at the changes in profits from domestic lending activities (= loans outstanding * interest
rate spreads on loans) over the last year, most banks faced a decrease, although their loans
outstanding increased. This suggests that a narrowing of interest rate spreads on loans iscontinuing to push down profits.

II-A-5: Relationship between changes in loans outstanding and profits
from loans (major and regional banks, domestic business sector)
20

Vertical axis: gross profits from loans,y/y % chg.(from FY2016 to FY2017)45-degree line

15
10
5
0
-5
-10
-15
-20

-20
-15
-10
-5
0
5
10
15
20
Horizontal axis: average amount of loans outstanding,y/y % chg.(from FY2016 to FY2017)
Note: 1. The data for loans outstanding do not include foreign currency-denominatedimpact loans.
2. Gross profits from loans = (average amount of loans outstanding) * (interest
rate spreads on loans).
Source: BOJ.

10

3. Interest Rate Spreads on Securities
Interest rate spreads on securities were more or less unchanged at major banks as stock yields
rose on the back of favorable corporate results, while JGB yields declined. Such spreads on
securities at regional banks increased for the third consecutive year owing to the rise in stockyields and the increasing share of investment trusts with wide profit margins.
II-A-6: Interest rate spreads on securities
Major banks
2.5

Regional banks

%

2.5

2.0

2.0

1.5

1.5

1.0

1.0

0.5

0.5

0.0

0.0

-0.5

-0.5

-1.0

-1.0

-1.5
FY 01

03 05
07
09
11
Interest rate on securities

13

15

17

%

-1.5
FY 01

Funding cost rate

03
05
07
09
11
Interest rate on securities

13

15

17

Funding cost rate

Interest rate spreads on securities
Interest rate spreads on securities
Interest rate spreads on securities (excluding
received dividends at a bank)

Interest rate spreads on securities (excluding
profits/losses from investment trusts due tocancellations)

Note: In calculating the interest rate spreads, interest expenses on interest rate swaps are deducted from funding costs.
Source: BOJ.

II-A-7: Factor decomposition of change in interest rates on securities by product type
Major banks
2.5

Regional banks

%

2.5

%

2.0

2.0

1.5

1.5

1.0

1.0

0.5

0.5

0.0

0.0

-0.5
FY 06 07 08 09 10 11 12 13 14 15 16 17-0.5
FY 06 07 08 09 10 11 12 13 14 15 16 17
Corporate bonds
Foreign securities
Total

JGBs
StocksMunicipal bonds
Investment trusts, etc.

Note: 1. The data are calculated on a half-year basis.
2. Some banks are excluded due to a lack of time-series data.
3. The rise in stock yields in the first half of fiscal 2016 reflects received dividends from subsidiary at a bank.
Source: BOJ.

11

II-A-8: Interest rates on securities holdings andamounts outstanding by product type (at month-end)
Major banks
6

%

5

year

tril.yen

200

5

160

4

120

3

80

2

40

1

4
3
2
1
0
FY 11

0

12

13

14

15

16

0
Sep. Mar. Sep. Mar. Sep. Mar. Sep. Mar. Sep. Mar.
2013 2014
2015
2016
2017
2018

17

JGBs
StocksStocks (excluding received dividends at a bank)Foreign securities
Corporate bonds

Investment trusts, etc. (lhs)
Stocks (lhs)
Foreign securities (lhs)Corporate bonds (lhs)
Municipal bonds (lhs)
JGBs (lhs)
Domestic bonds duration (rhs)

Regional banks
6 %120 tril.yen

5

100

4

80

3

60

2

40

1

20

year

5
4
3
2

0
FY11

1

0
12

13

14

15

16

17

0
Sep. Mar. Sep. Mar. Sep. Mar. Sep. Mar. Sep. Mar.
2013 2014
2015
2016
2017
2018
Investment trusts, etc. (lhs)
Stocks (lhs)
Foreign securities (lhs)Corporate bonds (lhs)
Municipal bonds (lhs)
JGBs (lhs)
Domestic bonds duration (rhs)

JGBs
StocksForeign securities
Corporate bonds

Note: 1. The data are calculated on a half-year basis.
2. The rate is annualized. In calculating interest rates, some banks are excluded due to a lack of time-series data.
3. Stock yields are calculated using a 2-quarter moving average to mitigate fluctuations in each quarter's dividends.
Source: BOJ.

12

4. Net Non-Interest Income
Net non-interest income decreased by 1.7 percent over the previous year at major banks mainly
because income from fees and commissions in the international business sector declined,
particularly for those associated with deposits and lending. Net non-interest income at regionalbanks decreased by 1.5 percent from the previous year, mainly due to a decline in fees andcommissions related to foreign exchange and derivative transactions. At both major and regionalbanks, fees and commissions for insurance products continued to decrease, although those
associated with domestic deposits and lending, such as the arrangement of syndicated loans aswell as securitization, increased and fees and commissions associated with sales of investment
trusts also started to increase.
II-A-9: Net non-interest income
Major banks
3.0

tril.yen

Regional banks
tril.yen

1.0

1.5

2.5
2.0

tril.yentril.yen

0.5

0.8

0.4

0.6

0.3

0.4

0.2

0.2

0.1

1.0

1.5
1.0

0.5

0.5

0.0
0.0
0.0
FY 01 03 05 07 09 11 13 15 17 15 16 17
FY 01 03 05 07 09 11 13 15 17 15 16 17(1H) (1H) (1H)
(1H) (1H) (1H)
Gains related to foreign exchange and derivative transactions and others
Net fees and commissions
Source: BOJ.

0.0

II-A-10: Income from fees and commissions (domestic business sector)
Major banks
1.2 tril.yen

Regional banks
tril.yentril.yentril.yen

0.6

1.2

1.0

0.5

1.0

0.5

0.8

0.4

0.8

0.4

0.6

0.3

0.6

0.3

0.4

0.2

0.4

0.2

0.2

0.1

0.2

0.1

0.0
16
17
FY 01 03 05 07 09 11 13 15 17 15(1H) (1H) (1H)
Underwriting and registration of bonds
Sales of investment trusts

0.0

0.0
0.0
16
17
FY 01 03 05 07 09 11 13 15 17 15(1H) (1H) (1H)
Arrangement of syndicated loans and securitization
Sales of insurance products
Foreign exchange businessNote: Among items of income from fees and commissions, the 5 items listed above are counted.
Source: BOJ.

13

0.6

II-A-11: Income from fees and commissions atmajor banks (by domestic andinternational business sector)
1.6

II-A-12: Income from fees and commissions
in the international business sector
at major banks

tril.yen% 35
0.4

tril.yen

1.4

30

1.2

25 0.3

1.0

20

0.8

0.2
15

0.6

10

0.4

0.1

0.2

5

0.0
FY 06 07 08 09 10 11 12 13 14 15 16 17
Domestic business sector(lhs)

0 0.0
FY 06 07 08 09 10 11 12 13 14 15 16 17
OthersSecurities-relatedInternational business sector(lhs)

Trust-related

AgencyInternational business sector ratio(rhs)

Guarantees

Foreign exchange

Deposits and lending
Note: The data are calculated on a half-year basis.

Note: 1. The data are calculated on a half-year basis.

Source: BOJ.

2. The figures are categorized based on each bank's
internal definition. "Deposits and lending" includes
income from fees and commissions related to thearrangement of syndicated loans, commitment lines,
securitization, and M&A transactions.
Source: BOJ.

14

5. General and Administrative Expenses
General and administrative expenses decreased slightly at major banks, mainly reflecting thepromotion of measures to reduce such expenses. At regional banks, general and administrative
expenses decreased due to a decline in personnel expenses. Meanwhile, overhead cost ratios (=overhead costs / gross operating profits) remained on an upward trend at both major and regionalbanks, mainly due to the decrease in gross operating profits.
II-A-13: Factor decomposition of change in general and administrative expenses
Major banks
6

Regional banks

y/y % chg.

6y/y % chg.

4

4

2

2

0

0

-2

-2

-4

-4

-6

-6

-8
FY 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17-8FY 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Personnel expenses
Non-personnel expenses (excluding deposit insurance premiums)
Deposit insurance premiums
Othersy/y % chg.
Source: BOJ.

II-A-14: Factor decomposition of change in general andadministrative expenses by sector at major banks
y/y % chg.
8
6II-A-15: Overhead cost ratios

75

Domestic business sector
International business sector
y/y % chg.

%
Major banks
Regional banks

70

4

65

2
60
0
55

-2
-4

50

-6
FY 07 08 09 10 11 12 13 14 15 16 17

45
FY 10

Source: BOJ.

11

12

13

14

15

16

Note: Overhead cost ratios = overhead costs /gross operating profits.
Source: BOJ.

15

17

B. Realized and Unrealized Gains/Losses on Securities Holdings
1. Realized Gains/Losses on Securities Holdings
Realized gains/losses on bondholdings turned slightly negative at major banks, and at regionalbanks, the extent to which such losses exceeded gains expanded. At both major and regionalbanks, further losses continued to be realized from sales of U.S. Treasuries due to the rise in U.S.
long-term interest rates.
As for realized gains/losses on stockholdings, the extent to which gains exceeded losses
continued to increase at both major banks and regional banks. Reductions in strategic holdings
and sales of ETFs to realize gains continued to proceed as stock prices rose.
II-B-1: Realized gains/losses on bondholdings
Major banks
2.0

tril.yen

Regional banks
tril.yen

1.0

1.0

tril.yentril.yen

0.50

1.5
1.0

0.5

0.25

0.0

0.00

-0.5

-0.25

-1.0
FY 01 03 05 07 09 11 13 15 17 15 16 17(1H) (1H) (1H)
Gains on redemption of bonds
Losses on devaluation of bonds
Total

-0.50

0.5

0.5
0.0

0.0

-0.5
-1.0
FY 01 03 05 07 09 11 13 15 17 15 16 17(1H) (1H) (1H)
Losses on redemption of bonds
Losses on sales of bonds
Gains on sales of bonds
Source: BOJ.

-0.5

II-B-2: Realized gains/losses on stockholdings
Major banks
2.0

tril.yen

Regional banks
tril.yen

0.5

1.0

tril.yentril.yen

0.25

1.0
0.5

0.0

0.0

-1.0
-2.0

0.0

0.00

-0.5
-0.5

-3.0
-4.0
-1.0 -1.0-0.25
FY 01 03 05 07 09 11 13 15 17 15 16 17
FY 01 03 05 07 09 11 13 15 17 151617(1H) (1H) (1H)
(1H) (1H) (1H)
Losses on sales of stocks
Losses on devaluation of stocks
Gains on sales of stocks
Total
Source: BOJ.

16

2. Unrealized Gains/Losses on Securities Holdings
Looking at unrealized gains/losses on available-for-sale securities holdings as of the end of March
2018, the extent to which unrealized gains exceeded losses has remained high, at about 9 trillion
yen at major banks and about 5 trillion yen at regional banks. Looking more closely at the
breakdown, unrealized gains/losses on holdings of "bonds and others" turned slightly negative atmajor banks as the extent to which unrealized losses on foreign bondholdings exceeded gains
increased due to the rise in long-term U.S. interest rates. On the other hand, the extent to which
unrealized gains in stockholdings exceeded losses continued to increase due to the rise in stock
prices countering the effect of reducing strategic shareholdings. At regional banks, the extent towhich unrealized gains in holdings of "bonds and others" exceeded losses decreased due tosmaller unrealized gains in domestic bondholdings resulting from their reduction, as well as
increased unrealized losses on foreign bondholdings. On the other hand, the extent to which
unrealized gains in stockholdings exceeded losses continued to expand.
II-B-3: Unrealized gains/losses on available-for-sale securities holdings
Major banks
Breakdown of bonds and others
12tril.yen10

2.5

Bonds and others
Domestic stocks and foreign stocks
Total

Other foreign securities
Foreign bonds
Other domestic securities
Domestic corporate bonds
JGBs and municipal bonds
Totaltril.yen

2.0

8

1.5

6

1.0

4

0.5

2

0.0

0

-0.5

-2

-1.0
Mar. Mar. Mar. Mar. Mar. Mar. Mar. Mar. Mar.
2010 2011 2012 2013 2014 2015 2016 2017 2018

Mar. Mar. Mar. Mar. Mar. Mar. Mar. Mar. Mar.
2010 2011 2012 2013 2014 2015 2016 2017 2018

Regional banks
Breakdown of bonds and others
7tril.yen

2.5

6

tril.yen

2.0

5

1.5

4
1.0
3
0.5

2

0.0

1
0

-0.5
Mar. Mar. Mar. Mar. Mar. Mar. Mar. Mar. Mar.
2010 2011 2012 2013 2014 2015 2016 2017 2018

Mar. Mar. Mar. Mar. Mar. Mar. Mar. Mar. Mar.
2010 2011 2012 2013 2014 2015 2016 2017 2018

Note: 1. The breakdown of bonds and others at both major and regional banks is shown on the right. "Other domestic
securities" and "other foreign securities" include investment trusts and funds.
2. The data are as of month-end and calculated on a half-year basis.
Source: BOJ.

17

C. Credit Costs and Non-Performing Loans
1. Credit Costs
Looking at credit costs, major banks recorded credit costs in reversals as there were reversals of
loan-loss provisions for domestic exposures to some large companies and loan-loss provision
ratios declined on the back of favorable economic conditions. Credit costs at regional banks also
remained at a low level.
The credit cost ratio (= credit costs / total loans outstanding) was minus 10 basis points (reversals)
at major banks and 4 basis points at regional banks.
II-C-1: Credit costs and credit cost ratios
Major banks
tril.yen

Regional banks
bptril.yen

bp

180

6

150

5

150

4

120

4

120

3

90

3

90

2

60

2

60

1

30

1

30

0

0

0

0

-1
FY 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17-30

6

Credit costs(2H)(lhs)
Credit costs(1H)(lhs)
Credit cost ratio(rhs)

5

-1
-30
FY 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
tril.yenbptril.yen

bp

30

0.6

0.4

20

10

0.2

10

0.0

0

0.0

0

-0.2

-10 -0.2

-10

-0.4

-20 -0.4-20 -0.2

30

0.6

0.4

20

0.2

0.6

tril.yen

bp

bp

30

0.6

0.4

20

0.4

20

0.2

10

0.2

10

0.0

0

0.0

0

-30 -0.4-30 -0.6
16
17
FY 15
FY 12 13 14 15 16 17(1H) (1H) (1H)
Write-offs(lhs)
Special provisions(lhs)
Others(lhs)
Credit cost ratio(rhs)-0.6

tril.yen180

FY 12 13 14 15 16 17-10 -0.2-10-20 -0.4
FY 15
16
17
(1H) (1H) (1H)
General provisions(lhs)-20

Note: 1. The lower charts show the breakdown of credit costs at major banks and regional banks, respectively.
2. Figures calculated on a half-year basis are annualized.
Source: BOJ.

18

30

The distribution of credit cost ratios among banks showed that, at major banks, the share of thosewith credit costs reversed increased significantly, accounting for 90 percent of the total, and thenumber of banks with credit costs greater than 10 basis points became zero. For regional banks,
the share of those with credit costs greater than 10 basis points continued to decrease, while there
was a pause in the rise in the share of banks with credit costs reversed.
II-C-2: Credit cost ratio distribution
Major banks

Regional banks

%

100

100

%

90

90

80

80

70

70

60

60

50

50

40

40

30

30

minus 20-10bp

20

20

10

10

under minus
20bp

12

13

14

15

16

17

0
FY

Note: Proportion of the number of banks by credit cost ratio.
Source: BOJ.

19

10-20bp0-10bpminus 10-0bp

12

13

14

15

16

17

Reversals

0FY

20bp and over

2. Non-Performing Loans
Non-performing loan (NPL) ratios continued to follow a moderate declining trend at both majorbanks and regional banks, and reached their lowest levels since fiscal 2001, when the relevant
data were first recorded. Meanwhile, the NPL ratios for overseas loans at the three major banks
remained at low levels.
Looking at the proportion of loans outstanding by borrower classification, the ratio of normal loans
at both major banks and regional banks continued to trend upward.
II-C-3: Non-performing loans outstanding and non-performing loan ratios
Major banks
Regional banks
30

tril.yen%
Special attention(lhs)
Doubtful(lhs)
Bankrupt or de facto bankrupt(lhs)
Non-performing loan ratio(rhs)

25
20

10

30

8

25

tril.yen

%

10
8

20
6

6

15

15
4

4

10

10
2

5

2

5

0
0
FY 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Source: BOJ.

00
FY 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

II-C-4: Non-performing overseas loan ratios (three major banks)
3%

Overseas
Asia
Others(excluding Asia)
Domestic2

1
Note: The data are calculated on ahalf-year basis.

0
FY 05 06 07 08 09 10 11 12 13 14 15 16 17100%

II-C-5: Proportion of loans outstanding by borrower classification
Regional banks
Major banks
100

95

95

90

90

85
80

Source: Published accounts of each bank.

%85"In danger of bankruptcy" and below"Special attention""Need attention""Normal"

80

75
75
FY 05 06 07 08 09 10 11 12 13 14 15 16 17
FY 05 06 07 08 09 10 11 12 13 14 15 16 17
Note: The data are calculated on a write-off basis and on a half-year basis.
Source: BOJ.

20

3. Loan-Loss Provisions(1) Loan-Loss Provision Ratios
The average loan-loss provision ratio for all exposures at major banks decreased somewhat
significantly from the previous year due to the decline in loan-loss provisions for domestic
exposures to some large companies. Such ratio at regional banks continued to decrease due to alarger proportion of normal loans with a low loan-loss provision ratio.
II-C-6: Loan-loss provision ratios
All exposures

1.8%

Special attention and indanger of bankruptcy

Normal and need attention
0.3

%

%

10

50 %

1.6
8

1.4

40

0.2

1.2

6

1.0

30

0.8

4
0.1

0.6

20

0.4

2

0.2
0.0
FY 05

07

09

11 13 15 17Major banks
Regional banks

10
0.0
0
FY 05
FY 05 07 09 11 13 15 17
Normal(major banks)(lhs)
Normal(regional banks)(lhs)
Need attention(major banks)(rhs)
Need attention(regional banks)(rhs)

07 09 11 13 15 17
Special attention(major banks)
Special attention(regional banks)
In danger of bankruptcy(major banks)
In danger of bankruptcy(regional banks)

Note: 1. The data include loans to which the discounted cash flow method is applied.
2. The loan-loss provision ratio is calculated as loan-loss provisions divided by the total amount of claims (not theuncovered amount of claims).
Source: BOJ.

(2) Outstanding Amount of Loan-Loss Provisions
Looking at the outstanding amount of loan-loss provisions, general provisions declined andspecial provisions also continued to decrease at major banks due to the decline in loan-loss
provisions for domestic exposures to some large companies and the reduction in the loans
outstanding to these companies. Both general provisions and special provisions continued tofollow a moderate declining trend at regional banks.

21

II-C-7: Factor decomposition of change in outstanding amount ofgeneral loan-loss provisions
Major banks
Regional banks
0.3

tril.yen

0.3

tril.yen

0.2

0.2

0.1

0.1

0.0

0.0

-0.1

-0.1

-0.2

-0.2

-0.3

-0.3

-0.4

-0.4
FY 06 07 08 09 10 11 12 13 14 15 16 17

FY 06 07 08 09 10 11 12 13 14 15 16 17Interaction variable

Loan-loss provision ratio factor

Amount outstanding factor

Total

Note: Each factor represents the sum of the amount calculated by borrower classification.
Source: BOJ.

II-C-8: Factor decomposition of change in outstanding amount ofspecial loan-loss provisions
Major banks
Regional banks
0.5

tril.yen
0.5

0.4

tril.yen

0.4

0.3

0.3

0.2

0.2

0.1
0.1

0.0

0.0

-0.1
-0.2

-0.1

-0.3

-0.2

-0.4
FY

06 07 08 09 10 11 12 13 14 15 16 17Interaction variable
Uncovered loan ratio factor
Total

-0.3
FY 06 07 08 09 10 11 12 13 14 15 16 17
Loan-loss provision ratio factor
Amount outstanding factor

Note: Each factor represents the sum of the amount calculated by borrower classification.
Source: BOJ.

22

D. Capital Adequacy Ratio
Turning to the capital adequacy ratio (on a consolidated basis), the common equity Tier 1 capitalratio (CET1 capital ratio) of internationally active banks rose further as retained earnings
continued to be accumulated while risk-weighted assets decreased slightly. The capital adequacy
ratio continued to rise due in part to the issuance of capital instruments that are reflected as capitalbase under the Basel III framework, such as additional Tier 1 perpetual subordinated bonds (AT1).
At domestic banks, the capital adequacy ratio declined slightly, as risk-weighted assets increased
while the arrangements for these banks to phase in the Basel III requirements continued to be
gradually removed (the proportion of instruments that can be included in capital was reduced).
II-D-1: Capital adequacy ratio
Internationally active banks
18

Domestic banks

%

18

16

16

14

14

12

12

10

10

8

8

6

6

%

4
FY 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Capital adequacy ratio

4
FY 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Capital adequacy ratio
Tier 1 capital ratio
Common equity Tier 1 capital ratio
Source: BOJ.

Tier 1 capital ratioCore capital ratio

II-D-2: Capital components and risk-weighted assets
Internationally active banks
tril.yenDomestic banks
tril.yentril.yentril.yen

350

35

60

300

30

150

50

250

25

125

40

200

20

100

30

150

15

75

20

100

10

50

10

50

5

25

0

0

0

0

-50

-5
-25
FY 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Tier 2 capital (subordinated debts) (lhs)
Deductions and regulatory adjustment (lhs)
Other Tier 1 capital (lhs)
Core capital(lhs)
Risk-weighted assets(rhs)70-10
FY 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Tier 1 capital (lhs)
Tier 2 capital (others) (lhs)
CET1 capital (lhs)
Tier 2 capital (lhs)
Capital (lhs)175

Note: Since fiscal 2013, the numerator of the capital adequacy ratio at domestic banks is referred as "core capital" in order
to distinguish the definition of "capital" in the current Financial Services Agency public notice from that in the former
public notice (the same applies to Chart III-D-2).
Source: BOJ.

23

Box 1: Comparison between the consolidated and non-consolidated
financial results of major banks
Looking at financial results at major financial groups, profits from group companies other thancommercial banks made a large contribution, while the core profitability of commercial banks on a
non-consolidated basis decreased.
In this regard, the gross operating profits of the three major financial groups by type of groupcompany showed that profits were pushed up mainly by overseas subsidiaries and affiliates,
non-banks, securities companies, and trust banks.
The ratio of consolidated net income to non-consolidated net income (= consolidated basis /non-consolidated basis) in financial results has continued to trend upward in recent years, marking
1.57 times for fiscal 2017.

B1-1: Gross operating profits of the threemajor financial groups for fiscal 2017
tril.yentril.yen
OthersNet fees and commissions
Net interest income

4

2.0

1.5

2.5

tril.yen

2.0

+57％

1.5
1.0

FY15
FY16
FY17
1.35 → 1.49 → 1.57

Source: BOJ.

Source: BOJ.

24

Total

Others0.0

Overseas subsidiaries
and affiliates

Non-banks

Securities companies

Trust banks

Commercial banks

0.0

0.5

Overseas subsidiaries
and affiliates0

The ratio of consolidated net income
to non-consolidated net income

Non-banks

0.5

1

1.0

Commercial banks

2

Securities companies

3

Trust banks5

B1-2: Breakdown of net income of the threemajor financial groups for fiscal 2017

III. Financial Results of Japan's Shinkin Banks for Fiscal 2017
This chapter analyzes shinkin banks' core profitability (net interest income, net non-interest
income, and general and administrative expenses), their credit costs and non-performing loans, aswell as capital adequacy ratio.

A. Core Profitability
1. Net Interest Income
Net interest income continued to decrease as the impact of narrowing interest rate spreads onloans was larger than that of an increase in loans outstanding.

III-A-1: Net interest income

2.5
2.0

tril.yen

Loan-related
Securities-related
Others
Net interest income

III-A-2: Factor decomposition of change innet interest income (change from ayear earlier)
0.10

y/y chg., tril.yen
Interest margin on
deposit factor
Deposits outstanding
factorInterest rate spreads on
securities factor
Securities holdings factor

0.05

1.5
0.00

Interest margin on loans
factorLoans outstanding factor

1.0
0.5

-0.05
Others0.0-0.10
FY 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
FY 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Note: 1. "Others" includes interest income on deposits at
Source: BOJ.
the Shinkin Central Bank and at the Bank ofJapan.
2. Loan-related = (average loans outstanding) *(interest rate spreads on loans).
Securities-related = (average outstanding
securities holdings) * (interest rate spreads on
securities).
Source: BOJ.

Net interest income(y/ychg.)

2. Interest Rate Spreads on Loans and Loans Outstanding(1) Interest Rate Spreads on Loans
Interest rate spreads on loans continued to narrow due to a decline in lending rates. The
distribution of interest rate spreads for individual shinkin banks also continued to shrink on thewhole.

25

III-A-3: Interest rate spreads on loans

3.0

%

2.5

III-A-4: Distribution of interest rate spreads on loans

Number of
banks

120
100

2.0

80

1.5

FY17
FY16
FY15
FY14
FY13

60

1.0
0.5

40

0.0

20

-0.5
FY 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Funding cost rate
Interest rate on loans
Interest rate spreads on loans
Note: In calculating the interest rate spreads, interest
expenses on interest rate swaps are deductedfrom funding costs.
Source: BOJ.

0less 1.50- 1.75- 2.00- 2.25- 2.50- 2.75- 3.00- 3.25- 3.50%
than 1.75 2.00 2.25 2.50 2.75 3.00 3.25 3.50
1.50
Note: In calculating the interest rate spreads, interest
expenses on interest rate swaps are deductedfrom funding costs.
Source: BOJ.

(2) Loans Outstanding by Lending Rate
Looking at developments in loans outstanding, those with low lending rates continued to increase.
III-A-5: Changes in loans outstanding bylending rate (from the end of March 2014
to the end of March 2018)8

tril.yen

III-A-6: Changes in proportion of loans
outstanding by lending rate (from the endof March 2014 to the end of March 2018)

16

%

14

6

12

4

10

2

8

0
6

-2

4

-4

2

-6

0

less
0.501.001.502.002.503.00than0.250.751.251.752.252.75- %0.25
End of March 2017→End of March 2018
End of March 2016→End of March 2017
End of March 2015→End of March 2016
End of March 2014→End of March 2015
End of March 2014→End of March 2018 total

less0.501.001.502.002.503.00than0.250.751.251.752.252.75- %0.25
End of March 2018
End of March 2017
End of March 2016
End of March 2015
End of March 2014

Source: BOJ.

Source: BOJ.

26

3. Interest Rate Spreads on Securities
Interest rate spreads on securities were more or less unchanged on the whole. Although anincrease in the amounts outstanding of investment trusts and foreign securities -- both of which
generate relatively high yields -- contributed to an expansion of interest rate spreads, the decline
in yields on domestic bonds, which account for a large portion of banks' portfolios, contributed tonarrowing interest rate spreads.

III-A-7: Interest rate spreads on securities
2.0 %III-A-8: Amounts outstanding and duration of
securities by product type
45

1.5
1.0
0.5
0.0
-0.5
FY 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17Interest rate on securities

tril.yen

year

9

40

8

35

7

30

6

25

5

20

4

15

3

10

2

5

1

0
FY 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Investment trusts, etc. (lhs)0

Stocks (lhs)

Funding cost rate

Foreign securities (lhs)Interest rate spreads on securities

Other domestic bonds (lhs)
Municipal, government-guaranteed, and public andcorporate bonds (lhs)
JGBs (lhs)Interest rate spreads on securities(excluding
profits/losses from investment trusts due tocancellations)
Note: In calculating the interest rate spreads, interest
expenses on interest rate swaps are deducted

Domestic bonds duration (rhs)
Source: BOJ.

from funding costs.
Source: BOJ.

4. Net Non-Interest Income
Net non-interest income decreased due to weakness in sales of investment trusts and insurance
products.
III-A-9: Net non-interest income
0.15 tril.yen

OthersNet fees and commissions

0.10

0.05

0.00

-0.05
FY 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Source: BOJ.

27

5. General and Administrative Expenses
General and administrative expenses decreased, particularly with respect to personnel expenses.
III-A-10: Factor decomposition of change in general and administrative
expenses2

y/y % chg.

1
0
-1
-2
-3
-4
-5
FY 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Others
Deposit insurance premiums
Non-personnel expenses (excluding deposit
insurance premiums)
Personnel expenses
y/y % chg.
Source: BOJ.

B. Realized and Unrealized Gains/Losses on Securities Holdings
1. Realized Gains/Losses on Securities Holdings
Looking at realized gains/losses on stockholdings, gains exceeded losses by a larger amount thanin the previous year. For those on bondholdings, however, the extent to which gains exceeded
losses was smaller than in the previous year.
III-B-1: Realized gains/losses on stockholdings
0.2

tril.yen

III-B-2: Realized gains/losses on bondholdings
0.2

0.1

0.1

0.0

0.0

-0.1

tril.yen-0.1
Losses on sales
Losses on devaluation
Gains on sales
Total

-0.2

-0.3
FY 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

-0.2
-0.3
FY 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Losses on redemption
Losses on sales
Gains on sales

Source: BOJ.

Source: BOJ.

28

Gains on redemption
Losses on devaluation
Total

2. Unrealized Gains/Losses on Securities Holdings
Looking at unrealized gains/losses on available-for-sale securities holdings as of the end of March
2018, the extent to which gains exceeded losses fell since that of bondholdings shrank, mainly
due to a decrease in the outstanding amount of domestic bonds.
III-B-3: Unrealized gains/losses on available-for-sale securities holdings
Breakdown of bonds and others
1.6

Other foreign securities
Foreign bonds
Other domestic securities
Domestic corporate bonds
JGBs and municipal bonds
Totaltril.yen
1.6

tril.yen
Bonds and others

1.4

1.4
Domestic stocks andforeign stocks
Total

1.2
1.0

1.2
1.0

0.8

0.8

0.6

0.6

0.4

0.4

0.2

0.2

0.0

0.0

-0.2

-0.2
Mar. Mar. Mar. Mar. Mar. Mar. Mar. Mar. Mar.
2010 2011 2012 2013 2014 2015 2016 2017 2018

Mar. Mar. Mar. Mar. Mar. Mar. Mar. Mar. Mar.
2010 2011 2012 2013 2014 2015 2016 2017 2018

Note: 1."Other domestic securities" and "other foreign securities" include investment trusts and funds.
2. The data are as of month-end.
Source: BOJ.

C. Credit Costs and Non-Performing Loans
1. Credit Costs
Credit costs continued to follow a declining trend and were the lowest since fiscal 2002, when therelevant data were first recorded.
Looking at the distribution of credit cost ratios among shinkin banks, the share of banks with credit
costs reversed was more or less unchanged, while the share of banks with credit costs greaterthan 10 basis points decreased.
III-C-1: Credit costs and credit cost ratio
1.0

tril.yenbp

100 0.4

III-C-2: Distribution of credit cost ratios

tril.yen

bp

40

100

%

90
0.8

80 0.3

30

80
70

0.6

60 0.2

20

60
50

0.4

40 0.1

10

40
30

0.2

20 0.0020
10Source: BOJ.

0
13
14
FY 12
20bp and over
0-10bpminus 20-10bp

15
16
17
10-20bp
minus 10-0bp
under minus 20bp

Reversals

0.0
0 -0.1-10
FY 1011121314151617
FY 02030405060708091011121314151617
Others(lhs)
General provisions(lhs)
Special provisions(lhs)
Write-offs(lhs)
Total credit costs(lhs)
Credit cost ratio(rhs)Note: Proportion of number of banks by credit cost ratio.
Source: BOJ.

29

2. Non-Performing Loans
NPL ratios continued to decline moderately and reached their lowest point since fiscal 2001, when
the relevant data were first recorded. The proportion of loans outstanding for normal loans
continued to trend upward.
III-C-3: Non-performing loans outstanding
and non-performing loan ratios

III-C-4: Proportion of loans outstanding byborrower classification

10

Special attention(lhs)%
12
Doubtful(lhs)
Bankrupt or de facto bankrupt(lhs)10Non-performing loan ratio(rhs)

8

8

6

6

4

4

2

2

70

0
FY 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Source: BOJ.

065
FY 05 06 07 08 09 10 11 12 13 14 15 16 17

tril.yen
12

100

%

95
90
85
80
75

"In danger of bankruptcy" and below"Special attention""Need attention""Normal"Note: The data are calculated on a write-off basis.
Source: BOJ.

3. Loan-Loss Provisions(1) Loan-Loss Provision Ratio
The average loan-loss provision ratio for all exposures continued to decline, mainly due toimproved loan portfolio quality (an improvement in the proportion of loans outstanding by borrowerclassification).
Looking at loan-loss provisions by borrower classification, the loan-loss provision ratio was low inmost of the borrower classifications. Factors behind this included the low number of corporatebankruptcies from a long-term perspective.
III-C-5: Loan-loss provision ratio
All exposures
2.5
2.0

%

Normal and need attention
0.20

%

%

1.5

25

%

Special attention andin danger of bankruptcy

20

0.15
1.0

15

1.5
0.10
1.0

10
0.5

0.5

"Special attention"

0.05"Normal" (lhs)"Need attention" (rhs)5"In danger ofbankruptcy"

0.0
0.00
0.0
0
FY 05 07 09 11 13 15 17
FY 05 07 09 11 13 15 17
FY 05 07 09 11 13 15
Note: 1. The data include loans to which the discounted cash flow method is applied.
2. The loan-loss provision ratio is calculated as loan-loss provisions divided by the total amount of claims (not theuncovered amount of claims).
Source: BOJ.

30

17

(2) Outstanding Amount of Loan-Loss Provisions
As for the outstanding amount of loan-loss provisions, general provisions decreased due to thedecline in the loan-loss provision ratio for "need attention" loans. Special provisions also
decreased due to declines both in the ratio of uncovered claims to all claims and the loan-loss
provision ratio, in addition to the reduction in the outstanding amount of loans requiring special
provisions.
III-C-6: Factor decomposition of change in theoutstanding amount of general loan-loss
provisions
0.06

tril.yen

III-C-7: Factor decomposition of change in theoutstanding amount of special loan-loss
provisions
tril.yen
0.06

Amount outstanding factor
Loan-loss provision ratio factor
Interaction variable
Total

0.04
0.02

0.04

Amount outstanding factor
Uncovered loan ratio factor
Loan-loss provision ratio factor
Interaction variable
Total

0.02

0.00

0.00

-0.02

-0.02

-0.04

-0.04

-0.06

-0.06

-0.08
FY 06 07 08 09 10 11 12 13 14 15 16 17-0.08
FY 06 07 08 09 10 11 12 13 14 15 16 17

Note: Each factor represents the sum of the amountNote: Each factor represents the sum of the amount calculated

calculated by borrower classification.

by borrower classification.

Source: BOJ.

Source: BOJ.

D. Capital Adequacy Ratio
The capital adequacy ratio decreased slightly. While the amount of capital increased, mainly due
to the accumulation of retained earnings, risk-weighted assets also increased.
14%

III-D-1: Capital adequacy ratio

III-D-2: Capital components and risk-weighted assets
14

12
10
8
Capital adequacy ratio
6

Tier 1 capital ratioCore capital ratio

4
FY 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Source: BOJ.

tril.yentril.yen

70

12

60

10

50

8

40

6

30

4

20

2

10

0

0

-2
FY 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17-10Core capital (lhs)
Deductions and regulatory adjustment (lhs)
Tier 2 capital (others) (lhs)
Tier 2 capital (subordinated debts) (lhs)
Tier 1 capital (lhs)
Capital (lhs)
Risk-weighted assets (rhs)
Source: BOJ.

31

Box 2: Heterogeneity in core profitability among regional financial
institutions
Regional banks and shinkin banks, both of which are highly dependent on net interest income from
deposits and lending in the domestic business sector, have demonstrated increasing
heterogeneity in core profitability among financial institutions.
Looking at factors behind changes in PPNR (excluding trading income) according to the differencein core profitability, profits at banks with relatively low core profitability were diminished by the large
negative contributions of lower lending rates and smaller interests on securities, despite theincrease in loans outstanding.
B2-1: Heterogeneity in PPNR (excluding trading income)
Major financial groups
Regional banks
Shinkin banks
140

FY2012=100

140

FY2012=100

140

120

120

120

100

100

100

80

80

80

60

60

40

40

60
40

Median10 percentile point

FY2012=100

20
20
20
FY12
13
14
15
16
17 FY 12
13
14
15
16
17
FY 12
13
14
15
16
Note: 1. Shaded areas indicate the 25-75 percentile range.
2. PPNR (excluding trading income) at major financial groups = gross operating profits - general andadministrative expenses + profits/losses on investments in affiliates - realized gains/losses onbondholdings on a non-consolidated basis.
Source: BOJ.

B2-2: Proportion of domestic net interest income in gross operating
profits from core business
100

%

80
60
40
20
0
Major Regional
financialbanks
groups

Shinkinbanks

Note: 1. Gross operating profits from core business = gross operating
profits - realized gains/losses on bondholdings.
2. Domestic net interest income at major financial groups is on a
non-consolidated basis.
Source: BOJ.

32

17

B2-3: Factors behind changes in PPNR (excluding trading income) by core profitability
Regional banks

Shinkin banks

Changes from fiscal 2015 to 2017,%
60

Changes from fiscal 2015 to 2017,%
80

40

40

20
0

0

-20

-40

-40
-80
-60
-80

-120
Upper
group

Middle
group

Lower
group

Upper
group

Middle
group

Lower
group

OthersOthersGeneral and administrative
expensesFees and commissions related to
M&A and syndicated loans, etc.
Interest payments on deposits

General and administrative
expenses
Net fees and commissions

Interest income on securities
Loans outstanding

Interest income on securities anddeposits
Loans outstanding

Interest rate on loans

Interest rate on loans

Operating profits from corebusiness

Operating profits from corebusiness

Interest payments on deposits

Note: Three groups (upper group, middle group, and lower group) are ordered from top to bottom based ontrisection of ROA calculated using PPNR excluding trading income for fiscal 2017. PPNR (excluding
trading income) exclude profits/losses from investment trusts due to cancellations.
Source: BOJ.

33

Reference: Developments in Financial Markets▽ Nikkei 225 Stock Average and foreign exchange
rates
25,000yen

yen▽ JGB yields, etc.

135 0.8%
10-year JGB yield

Nikkei 225 Stock Average(lhs)

24,000130

U.S. dollar/yen(rhs)

23,0002-year JGB yield

0.6

125

22,00021,000120

TIBOR(3-month)
0.4

20,000115 0.2
19,00018,000110

17,000105

16,000100

15,00014,000
16/1
Jan.
2016

95
16/7
July

17/1
Jan.
2017

17/7
July

18/1
Jan.
2018

▽ U.S. treasury yields, etc.

3.0

%

0.0

-0.2

-0.4
16/1
Jan.
2016

16/7
July

17/1
Jan.
2017

17/7
July

18/1
Jan.
2018

▽ U.S. dollar funding premiums

10-year UST yield
2-year UST yield
Federal funds rate

-1.2

%
5Y

-1.0

2.5

1Y
3M

-0.8
2.0
-0.6
1.5
-0.4
1.0
-0.2
0.5

0.0

0.0
16/1
Jan.
2016

16/7
July

17/1
Jan.
2017

17/7
July

0.2
16/1
Jan.
2016

18/1
Jan.
2018

16/7
July

17/1
Jan.
2017

17/7
July

18/1
Jan.
2018

Note: 1. Latest data as at end-March 2018. U.S. dollar funding premiums indicate the additional interest costs on U.S.
dollar LIBOR in financing U.S. dollar funds collateralized by yen funds. 3M dollar funding premiums, which are
expressed in opposite signs, show U.S. dollar funding costs on U.S. dollar LIBOR spreads through currency
and foreign exchange swaps. Both 1Y and 5Y dollar funding premiums are U.S. dollar/yen cross-currency
basis swaps.
2. The lightly shaded areas show the data in fiscal 2016. The darker shaded areas show the data in fiscal 2017.
Source: Bloomberg.

34

GlossaryFinancial statements of financial institutions
Net income = operating profits from core business + realized gains/losses on stockholdings +realized gains/losses on bondholdings – credit costs ± others (such as extraordinary
gains/losses)
Operating profits from core business = pre-provision net revenue (PPNR) (excluding trading
income) = net interest income + net non-interest income – general and administrative
expenses
Net interest income = interest income – interest expenses
Net non-interest income = net fees and commissions + profits on specified transactions+ other operating profits – realized gains/losses on bondholdings
Realized gains/losses on stockholdings = gains on sales of stocks – losses on sales of stocks– losses on devaluation of stocks
Realized gains/losses on bondholdings = gains on sales of bonds + gains on redemption of bonds– losses on sales of bonds – losses on redemption of bonds – losses on devaluation of bonds
Credit costs = loan-loss provisions + write-offs + losses on credit sales – recoveries of write-offs
Credit cost ratio = credit costs / total loans outstanding

Capital adequacy ratios of internationally active banks
Common equity Tier 1 (CET1) capital ratio = CET1 capital / risky assets
CET1 capital comprises common equities and retained earnings.
Risky assets are financial institutions' risk-weighted assets.

Tier 1 capital ratio = Tier 1 capital / risky assets
Tier 1 capital includes CET1 capital and equities such as preferred equities that meet certain conditions.

Total capital adequacy ratio = Total capital / risky assets
Total capital includes Tier 1 capital and subordinated bonds that meet certain conditions.

Capital adequacy ratios of domestic banks
Core capital ratio = core capital / risky assets
Core capital includes common equities and retained earnings as well as equities such as preferred equities
that meet certain conditions.
Risky assets are financial institutions' risk-weighted assets.

35