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The Risky Bets Putting Japan’s Local Banks on Dangerous Path

  • Low rates led lenders to make riskier loans and investments
  • Regional banks are ill-prepared for next crisis: CreditSights
Bank of Japan Governor Haruhiko Kuroda Attends Branch Managers Meeting
Photographer: Akio Kon/Bloomberg
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Japan’s regional banks, desperate to shore up waning earnings, are making risky bets that could blow up in the next economic downturn.

In search of returns squeezed by negative interest rates, local lenders have been boosting real-estate and small-business loans that led bad-debt costs to triple last fiscal year. And with their holdings of Japanese government bonds falling to about half the levels of five years ago, they are increasing exposure to foreign assets.