Japan’s Chugoku Bank, based in the Chugoku region, is projected to maintain its strong liquidity, moderate asset quality, and capitalization over the next 12 to 18 months, according to Moody’s Ratings. Although the bank’s profitability remains weak, there has been gradual improvement, supported by an expansion in net interest income. This growth is driven by increased domestic interest rates, which offset the rise in operating expenses caused by inflation and pay rises.
However, Moody’s has expressed concern about the bank’s rapid loan growth. The bank’s loan growth reached 12.3% for FY2023 (ending March 2024), surpassing the average of 6.8% over the past three years. While rapid loan growth can be beneficial, Moody’s warned that it introduces unseasoned loans, which may lead to deteriorating loan quality in the future. Additionally, the US tariffs could exert pressure on borrowers’ credit quality.
Despite these risks, the bank’s adequate underwriting and monitoring policies, as well as its high loan loss coverage, should mitigate potential negative impacts. Furthermore, Chugoku Bank’s liquidity remains robust, underpinned by a strong deposit base in its home market, Okayama Prefecture.
Moody’s forecast a moderation in the bank’s loan growth and expects the Chugin Financial Group, the bank’s parent, to maintain ample liquid resources despite the increased loan-to-deposit ratio.
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