Regulatory Risks Abound In The Search For New Growth Sources
BMI View: We believe that Japanese banks will face growing regulatory risks and costs in their diversification efforts to grow revenues unrelated to traditional streams from their domestic market, which will weigh further on the sector's outlook. Externally, they face greater regulatory uncertainty as authorities in various countries are likely to in various banking system. Domestically, banks are likely to face higher costs due to growing public expectations for financial institutions to ensure that both their related entities and clients fully comply with all regulation.
We believe that even as Japanese banks seek to diversify away from traditional revenue streams in their domestic market, they will encounter greater risks as the changing sector landscape is likely to result in tighter regulatory conditions both domestically and globally. We expect these risks to make it more difficult for Japanese banks to grow these new businesses quickly and profitably, constituting another reason supporting our downbeat outlook of the sector, on top of the severe downside risks for banks that stem from high levels of government debt.
Greater Regulation Amid Financial Stability Concerns
|Obstacles Cap Revenue Growth Beyond Japan|
|Japan - Non-Domestic Revenues For Top Four Banks, %|