IMF highlights risk of systemic stress in Japan’s banking system

JIJI

The International Monetary Fund has warned that trouble at just one of Japan’s major banks could send shock waves through the nation’s entire banking system.

In its Global Financial Stability Report, the IMF voiced concern over weak profitability, particularly at the three Japanese mega-banks as well as major European banks.

Profitability of “global systemically important banks,” or GSIBs, in Japan and Europe has been held down by “structural forces such as high operating costs, low operating efficiency, and highly competitive home markets, exacerbated in several cases by weak information technology systems,” the report said.

“An environment of low domestic interest rates also affects the Japanese GSIBs,” it added.

Further, the report said Japanese mega-banks, including Mitsubishi UFJ Financial Group Inc., seek “continued international expansion to offset compressed domestic profitability” and that “such expansion increases currency and maturity mismatch risks.”

“Problems in even a single GSIB could generate systemic stress,” the report said, underscoring the importance of government supervisory action staying focused on business-model risks and sustainable profitability at the mega-banks.