BoJ: Japan's megabanks grow dollar deposits through existing foreign clients
Serguey Asael Shinder2 min readThe Bank of Japan published an English translation on 25 September of a Review, first issued in Japanese in July, on how the three Japanese global systemically important banks fund their overseas lending in foreign currency. The authors, from the bank examination department, use transaction-level deposit data collected with the Financial Services Agency.
The starting point is a structural gap. The megabanks' foreign currency deposits have long been smaller than their overseas lending, because building a retail deposit base abroad is hard. The shortfall is covered by more stable but costlier funding: foreign currency bonds and medium- to long-term FX and currency swaps funded with surplus yen. The paper warns that the swap route may grow more slowly as domestic competition for yen deposits intensifies with changing interest rates, and that bond funding depends on global market conditions. So the banks are pushing for dollar deposits, mainly from companies, by raising deposit rates and expanding transaction banking.
The analysis of dollar deposits finds that recent growth comes from existing non-Japanese depositors adding to their balances, mainly in the Asia-Pacific region. In the United States, even Japanese depositors' balances have fallen, with outflows from departing clients, which the authors read as intense competition from foreign banks. In past periods when total balances fell, depositor attrition did not rise, suggesting the banks adjusted time deposit rates to steer volumes.
Larger depositors are more likely to leave, and attrition rises when financial markets are under stress. Depositors who hold more transaction deposits, the non-interest-bearing balances tied to cash management services, leave less often and cost less to acquire.
Why it matters
Japanese banks are among the largest foreign lenders in dollars, and how they fund that lending is a channel through which yen rates and global stress meet. The finding that deposits growing fastest are also the most rate-sensitive, while stress raises attrition, is a reminder of where that funding is thinnest.