Japanese financial conglomerate SBI Holdings Inc. anticipates a flood of money from yield-starved regional banks that need help reinvesting cash after redeeming government bonds.
A year-old SBI unit that invests on behalf of local banks should see assets at least doubling to 300 billion yen ($2.7 billion) this year, said Tomoya Asakura, an executive at the Tokyo-based group. “We are seeing very strong demand,” he said in an interview.
Japan’s 100-plus regional banks have been hit by diminishing returns from their domestic securities portfolios after unprecedented monetary easing caused long-term interest rates to tumble. Yields on Japanese government bonds, which used to make up the bulk of their assets, are now negative through 10-year tenors, forcing the lenders to look elsewhere for returns.
And the headache for local banks is only getting worse. About 15 trillion yen, or 40%, of their JGBs and local government notes as of March 2019 are set to mature within three years, Financial Services Agency figures show.
Because many regional lenders don’t have the in-house expertise to pick and manage assets such as overseas bonds, Asakura expects more to seek outside professionals to manage their securities portfolios. Nordic real estate-backed securities and U.S. municipal bonds are among the assets SBI is eyeing, he said.
“They didn’t have to take risks in the past, but now they do,” said Asakura, who heads SBI’s asset management operations. “It’s a great business opportunity for us.”
Asset management is just one way SBI is deepening ties with regional banks. The Tokyo-based firm has been taking stakes in some lenders to help them deal with issues such as pressure on business stemming from the shrinking population.
SBI Regional Revitalization Asset Management Co., the unit that handles local lenders’ investments, started operations in January 2019 and has 13 employees. It currently manages money for 37 regional lenders, which are also shareholders in the unit, including Aomori Bank Ltd. and Yamaguchi Financial Group Inc.
Other firms including All Nippon Asset Management Co. have also started exclusively targeting local banks.
“There is a sense of urgency especially among small banks that something has to be done,” Asakura said.