EUR 850.00 For Business Accounts Only

Morningstar | Resona Company Report

Resona’s lack of large overseas operations is a double-edged sword; on the one hand, unlike the megabanks it cannot expand international lending to compensate for the poor returns available in Japanese commercial banking, but on the other hand, with its domestic focus, Resona effectively escapes increasingly stringent Basel III rules on risk weightings, allowing it to act as a potential consolidator of regional banks even if doing so expands its balance sheet and lowers its capital ratios. Resona’s acquisition of controlling stakes in Kansai Urban Banking and Kobe-based Minato Bank in 2017 expanded its assets and revenue by about 20%, and we expect efficiency gains over our forecast horizon as these two units are integrated with Resona’s Kinki Osaka Bank under the Kansai Mirai Financial Group (7321 JP) holding company.Resona is already one of the most cost-efficient Japanese banks, reflecting its business and geographic mix and its history under government ownership after a bailout of its predecessor bank in the early 2000s. It has large market shares in its main operating areas: about 40% in Saitama prefecture north of Tokyo and close to 20% in Osaka. Further, its focus on the retail segment, particularly housing loans (46% of total loans as of March 2018), helps it avoid direct competition with the megabanks for large corporate borrowers. As it remodeled its operations under government ownership, Resona was an early investor in efficient IT systems and continues to invest in providing simple interfaces for its sales staff and customers to support growth in fee revenue from selling mass-market investment products.Resona, which would have had negative equity a decade ago in the absence of the government capital injection, has historically retained a larger share of its earnings than other Japanese banks in order to repay its public funds. The final repayment was completed in 2015, making Resona a fully private company focused on its regular shareholders. Although leverage is still slightly higher than average, we expect Resona to gradually increase dividends now that its capital ratios are no longer abnormally low.