Moody's: Japan banking system stable, despite pressure on domestic profitability

The US-based ratings agency, Moody’s Investors Service, out with its latest report on the Japanese banking system, highlighting the following:

Outlook for Japan's banking system is stable over the next 12-18 months. Specifically, domestic asset risks for Japanese banks will remain low.

Tetsuya Yamamoto, a Moody's Vice President and Senior Analyst, noted: "A steady operating environment, supported by above-trend economic growth, will outweigh the persistent pressure on profitability of Japanese banks' domestic businesses." 

The stable outlook is based on Moody's assessment of five drivers: operating environment (stable); asset risks and capital (stable/stable); profitability and efficiency (deteriorating); funding and liquidity (stable); and government support (stable).

Moody's says that the operating environment will stay stable for Japanese banks over the next 12-18 months. In particular, above-trend economic growth will support domestic loan growth of around 3% on an annualized basis, which is similar to the 2%-3% annual growth since 2013.

Moody's has raised its real GDP growth forecast for Japan to 1.5% for 2017 and 1.1% for 2018 from 1.1% and 0.8%.