Japan's Biggest Banks Lose Profit Due to Asia Economic Slowdown

Asia's economy weakened this year resulting a drop in Japanese financial industry as well. Three of the Japanese biggest banks are estimated to have their profit declining. Even so, they are still operating in the lowest risk operation.

Bloomberg reported that three bigest Japanese bank will probably report a drop in second-quarter profit, after Asia's economic slowdown weakened overseas loan growth and global financial-market volatility crimped fee businesses. Based on five analysts estimation compiled by Bloomberg, three mega-banks Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. is estimated to have a combined net income fall to 24 percent from last year. Sumitomo Mitsui probably will have the steepest profit drop. Due to impairment charge from investment in PT Bank Tabungan Pensiunan Nasional, following plunge ot Indonesian company's shares.

Japan is the third largest world economy in GDP and the largest creditor nation in the world. The three biggest bank mentioned hold a combined total asset of around $5 trillion. In order to broaden operation, the big-three Japanese bank have expanded in Asia, either through acquiring local bank or establishing their branches.

Target of Japanese mega-banks expansion plan, especially the lending business, go further until down under in Australia. According to Japan Times, total of loans outstanding in Australia grew to $28.1 billion as of September 30. Analyst of Credit Suisse Group AG in Tokyo, Takashi Miura told Japan Times that all of Japanese mega-banks aim to increase their lending operation outside Japan as part of midterm plan and to look for alternative market after a slowdown in China. "Australia is relatively safe, so they're making a particular effort there." Miura explained further. Australia becomes target market for Japanese bank mainly because of higher margin available than Japan. One of big project which Mitsubishi UFJ involved in is a $700 million loan to the Royal North Shore Hospital Project in Sydney.

"The Japanese mega-banks all want to increase lending abroad as part of their midterm plan, and with the sharp slowdown in China, they need to look elsew

Although facing a big decline in profit, but the big three are still operating in away from the risk. According to Japan News the new rules from Financial Stability Board are unlikely to affect Japan's three megabank groups. This is because of Japanese country's deposit insurance system as the industry's safety net.

Last week, Financial Stability Board issued a new updated list of 2015 global systemically important banks (G-SIBs). The list consists of 30 most important bank in the world and ranked them based on their risk exposure. Two of the Japanese banks, Sumitomo Mitsui and Mizuho, are ranked among the safest and Mitsubishi UFJ is listed among the number two of safest bank.

Weakened Asia's economy also affected the biggest financial insitutions in Asia, including the group of mega Japanese banks. As they will announce their profit on Friday, it is estimated they will have a big decline. Nevertheless, those banks are still ranked as among the safest global bank.