Shizuoka, Japan Regional Banks May Accelerate Stock Buybacks, Nomura Says

Shizuoka Bank Ltd. and Suruga Bank Ltd. are among Japanese regional lenders that may embark on another round of stock buybacks this fiscal year to boost shareholder returns, according to Nomura Holdings Inc.

About 10 provincial banks may buy back shares again in the year ending March, after making purchases in the first half, said Masahiko Sato, an analyst at Nomura Securities Co.

By building internal reserves, Japanese regional banks have increased their capital above the minimum levels proposed in September by the Basel Committee on Banking Supervision. Higher reserves have given them room to spend cash on stock buybacks to bolster share prices, Sato said in a Nov. 8 interview in Tokyo.

“Other smaller lenders will probably follow suit if Shizuoka and Suruga Bank return to the market in the second half for buybacks,” said Sato, who has a “neutral” rating on both stocks. “Slumping bank share prices, coupled with sufficient capital, are driving a group of regional banks to bring their focus on boosting their shareholder returns.”

Bank of Saga Ltd. aims to buy back the maximum of 1 million shares in the next six months for 230 million yen ($2.8 million) said it today in a statement to the Tokyo Stock Exchange.

Japanese banks are the third-worst performers on the benchmark Topix index over the past year, falling 19 percent as the weakening economy reduces demand for loans. The 83- member Topix Banks Index dropped to a record low on Nov. 1, and bank lending has declined for 11 months.

Suruga Bank shares climbed 1.8 percent to close at 743 yen on the Tokyo Stock Exchange after gaining as much as 3.2 percent. Shizuoka Bank rose 0.1 percent to 726 yen.

Shizuoka Bank’s Buybacks

Ten local banks including Shizuoka and Suruga spent about 30 billion yen ($367 million) this year buying back their own shares, according to filings.

Shizuoka Bank, based about 180 kilometers (110 miles) southwest of Tokyo, bought 8.2 million of its shares for 6.1 billion yen in the fiscal first half, the lender said in a statement filed to the Tokyo Stock Exchange on Sept. 22. It may continue the practice to meet shareholders’ expectations taking into account the share price and earnings, said Managing Executive Officer Akihiro Nakamura, without giving details on timing.

Regional banks’ bolstering of reserves contrasts with share selling by Japan’s three largest banks. Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. raised a combined 4.5 trillion yen from share sales in the past two years to bolster capital ahead of stricter global requirements.

Shizuoka Bank raised its core Tier 1 capital ratio, a measure of a bank’s ability to absorb losses, to about 14 percent as of March 31 from about 12 percent in March 2007, according to data compiled by the bank.

That’s higher than Mitsubishi UFJ’s core Tier 1 ratio of 6.6 percent as of June 30 and Sumitomo Mitsui’s 5.9 percent, according to an estimate by UBS AG. Mizuho’s ratio including convertible preferred stock stood at 4.5 percent.

The Basel committee agreed in September to boost the minimum capital requirement to 7 percent of assets from 2 percent previously, giving banks almost a decade to fully comply.

To contact the reporters on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net; Shingo Kawamoto at skawamoto2@bloomberg.net.

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net.

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