Samurai, Ninja loans boom as Japan banks hunt for yield

Kyoto Financial

09/09/2019 06:46

* Regional banks are lending more to non-Japanese companies
    * Samurai and ninja loans earn lenders more yield
    * Swap rates draw non-Japanese companies to samurai, ninja
markets

    By Stanley White
    TOKYO, Sept 9 (Reuters) - Japanese regional banks are
increasingly lending to foreign  companies and other borrowers
via samurai and ninja loans as they struggle with interest rates
stuck at zero and seek to diversify their customer base.
    Foreign companies who have long capitalised on the low cost
of borrowing yen in the carry trade have also stepped up
issuance of such credit as cross-currency interest rate swaps
tumble.
    "Regional banks have less opportunity to lend because the
number of local companies is falling, and we have low margins
because interest rates are so low," said Kazuyuki Ikegami,
senior counsellor in the Tokyo branch of Bank of Kyoto Ltd
 8369.T , which is based in Western Japan.
    "We need the opportunities to lend that samurai loans
provide us, and they're great because they mitigate currency
risk. We're putting more people on the samurai loan market."
    Samurai loans, which are yen loans issued in Japan by
foreigners, doubled to $21.5 billion last year and have
continued rising this year, according to Refinitiv data.
    Ninja loans, debt issued by a foreigner in Japan in any
currency that usually yields more than domestic yen lending,
jumped 50% in the first half of the year - the fastest pace
since the first half of 2015 - according to data from LPC, a
fixed income news service that is part of Refinitiv.
            
    
    
    The trend shows Japan's yield-starved smaller regional banks
are joining the mega-banks that previously dominated these
markets, as they seek opportunities to put their vast deposits
to work and generate higher returns.
    Japanese banks can earn more in the samurai and ninja market
for any given creditor profile than they can when they lend to
domestic companies.
    For example, Canada's largest pipeline operator Enbridge Inc
 ENB.TO  issued a 3-year samurai loan paying 65 basis points
over yen LIBOR earlier this year, according to Refinitiv. It has
also sold a five-year tranche at 85 basis points over LIBOR.
    Spreads on conventional loans to Japanese corporates rarely
exceed 50 basis points above the benchmark rate. Japanese
companies with the best credit ratings pay only a few basis
points over the benchmark. 
    Non-Japanese companies typically in the financial services,
utilities, and food and beverage sectors are exploiting the
opportunity to raise near-zero loans and the opportunity to gain
exposure to a broader range of investors.
    
    CHEAP TO SWAP YEN
    Foreign companies are opting to raise low-cost, long-term
loans due to cheaper cross-currency interest rate swaps and the
majority of borrowers come from the United States, India, Hong
Kong and Canada, according to LPC data.
    The cost to swap variable-rate yen loans into dollars has
tumbled since the start of 2016, when the Bank of Japan adopted
negative interest rates, making it more attractive for
non-Japanese companies to borrow in yen.    
    
    
    The BOJ has been steadily pumping money into the financial
system since it started quantitative easing in March 2014, by
buying massive amounts of government debt to spur consumption in
the world's third-largest economy.
    Negative interest rates were meant to turbocharge already
loose monetary conditions by pushing up lending and consumer
prices, but the policies haven't helped the economy much.
    Commercial banks bristled at the notion of having to pay
0.1% on a small portion of their reserves kept at the central
bank.
    The yield curve flattened so much that banks could not earn
money from the spread between short-term and long-term rates.
Eight months after the introduction of negative rates, the BOJ
said it would allow the yield curve to steepen, but this has
done little to improve banks' margins.
    Even worse, Japanese banks' domestic lending growth peaked
in July 2017 and has been sluggish since.
    "We are into the samurai loan market, because it is all
about our need to get extra yield," said Takeshi Endo, deputy
general manager of the financial markets department at Bank of
Yokohama. "I think more regional banks like ours will be drawn
to the samurai loan market."

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Samurai and Ninja loan issuance    https://tmsnrt.rs/2PNnL1n
Cross currency basis swap rates    https://tmsnrt.rs/2MWOKW8
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 (Editing by Vidya Ranganathan and Jacqueline Wong)
 ((stanley.white@thomsonreuters.com; +81 3 6441 1984
twitter.com/stanleywhite1;))