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8332 - Bank Of Yokohama News Story

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Negative rates, fat margins: Japan regional banks ramp up car, holiday loans

Thu 10th March, 2016 11:00pm
* Lenders pivot to unsecured, high-interest retail loans 
    * Negative rates squeeze business, mortgage loan yield 
    * Banks soak up higher risk as 'only way to make profit' 
    By Taiga Uranaka 
    TOKYO, March 11 (Reuters) - Japanese regional banks are 
aggressively expanding their unsecured retail lending business, 
lured by the segment's fat margins now the country's central 
bank has squashed already ultra-low interest rates into negative 
    Unsecured loans, typically offering up to 1 million yen 
($8,800) in fast cash for anything from shopping trips to 
vacations, can command interest rates of close to 15 percent in 
some cases - way above rates for business like mortgages or 
small firm borrowing. Car loans are also popular. 
    Small-sized loans combined with high profit margins make the 
risk of lending without collateral worth taking for the banks. 
In an over-banked, low-return market, the hunt for domestic 
yield is much more pressing for Japan's scores of regional 
lenders than global giants like Mitsubishi UFJ Financial Group 
Inc  8306.T , able to draw on overseas and investment banking. 
    Bank of Yokohama Ltd  8332.T , Japan's No.2 regional lender 
by assets, said its outstanding unsecured retail loan portfolio 
jumped 39 percent year-on-year to 59.4 billion yen ($527.5 
million) for the first fiscal half ended last September. 
Continued growth at that rate would see it beat its own target 
of 70 billion yen for the 12 months through March. 
    "With interest rates falling on all other loans such as 
business and mortgage loans, they are pretty much the only one 
we can make profit on," said an official at the bank. 
    While Bank of Yokohama's unsecured loans make up only a 
fraction of its overall retail lending of 4.9 trillion yen, 
their margins are very attractive as borrowers are willing to 
pay a higher interest rate for funds extended relatively easily 
and quickly.     
    For instance, Bank of Yokohama's 10-year fixed mortgage rate 
is 0.725 percent for borrowers rated most likely to repay debt. 
Rates for free-purpose loans - unsecured lending where users can 
borrow money to spend however they choose - can run from 1.9 
percent to as much as 14.6 percent.     
    Ryoji Yoshizawa, director at Standard & Poor's in Tokyo, 
said demand for such loans is likely to increase. He said 
consumers in Japan face a lack of real wage growth, despite 
Prime Minister Shinzo Abe's best efforts to prod employers in 
the world's third-biggest economy into paying staff more to 
stoke consumer spending. 
    "In terms of profitability, it's almost the same as making 
100 billion yen unsecured loans as making 1 trillion yen 
mortgage loans," said one official at another large regional 
lender, who declined to be identified because he was not 
authorised to discuss the matter publicly.  
    For some, the appeal of the unsecured loan market initially 
provided unwelcome echoes of rampant growth in Japan's consumer 
finance industry in the last decade, which ended with regulators 
intervening to clamp down on what they said were excessively 
high rates and ordering compensation be paid to borrowers.  
    "Management at many regional banks were at first 
uncomfortable with such lending, as they don't want the image of 
loan shark," said an official at one of the regional lenders, 
declining to be named. "But now, everybody is jumping in."      
    Chiba Bank Ltd  8331.T , Japan's third-largest regional 
bank, said it increased unsecured retail loans by nearly 10 
billion yen to 99.2 billion yen in the six months ended 
September. It now wants to expand these loans to 130 billion yen 
by the end of March, 2017.  
    As the unsecured loan sector grows, so too is another 
business line - guarantors. 
    Many banks pay fees to non-bank speciality companies to 
guarantee their portfolio of unsecured loans. Orient Corp 
 8585.T , one of the largest guarantee providers, said its 
outstanding guarantees for regional banks stood at 396 billion 
yen as of the end of last September, up 24 percent from two 
years earlier.         
($1 = 113.5600 yen) 
 (Editing by Lisa Jucca and Kenneth Maxwell) 
 ((; +81-3-6441-1813; Reuters 
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