Regional and Mid-Tier Banks Q1 FY2027: Shizuoka FG leads as rates rise

All five banks reported year-on-year increases in both revenue and profit. A common tailwind was wider funding income following the Bank of Japan’s rate hikes.

• Funding income drove growth. Shizuoka FG posted revenue of ¥136.8 billion, up 49.0% year on year, while Chiba Bank recorded ¥145.3 billion, up 41.4%. Both outpaced the five-bank average revenue growth of 27.4%.
• Profit growth outpaced revenue growth at many banks. FFG’s revenue rose 20.1% to ¥151.9 billion, while profit increased 27.5% to ¥41.5 billion, as higher rates boosted earnings.
• Securities income also created diverging results. Chiba Bank’s interest and dividends on securities rose to ¥50.5 billion from ¥19.5 billion a year earlier. But bond sales and valuation losses also weighed on profits at some banks.
• Profit growth and profit size tell different stories. Aozora led on net-income growth, up 81.7% to ¥11.5 billion, while Shizuoka FG’s profit of ¥32.7 billion, up 45.0%, was higher in absolute terms.

Shizuoka FG was the overall winner, leading the group in profit and profit margin. Profit rose 51.0% to ¥47 billion, the highest among the five. Its operating profit margin of 34.3% was also the highest among the four banks with available figures, and its revenue growth of 49.0% led the group.

Gains were also supported by stock and other securities sales. Higher interest income from loans and securities contributed, but the pace of growth may not be repeated if those sales gains do not recur.

Yokohama FG was the relative laggard. Its profit rose 18.6% to ¥45.5 billion, ranking second among the five, but its revenue growth of 15.9% and net-income growth of 18.4% were both the weakest in the group. Still, it recorded its fourth consecutive quarter of profit growth, rather than a downturn, increasing loan interest income while absorbing bond-sale losses.

The leader in profit size is not the leader in growth rate. Investors should distinguish one-off gains from securities sales from recurring income generated by lending and asset management.

The results also reflect initiatives and revenue sources beyond the impact of rising rates.

• Chiba Bank announced a share buyback. Funding income rose 55.5% year on year to ¥112.2 billion. At the same time, gains and losses on government bonds and other securities showed a ¥29.1 billion loss, highlighting both the growth in investment income and the risks from interest-rate exposure.
• Shizuoka FG benefited from higher interest income on loans and securities, as well as gains from stock and other securities sales. Profit led the group at ¥47 billion, up 51.0%, but the durability of earnings without heavy reliance on sales gains will be a key focus.
• FFG increased funding income by ¥11.4 billion year on year. Loan interest income rose ¥7.5 billion, or 27.8%, while interest and dividends on securities increased ¥3.2 billion, or 24.6%. Revenue led the group at ¥151.9 billion, up 20.1%.
• Yokohama FG increased profit through higher loan interest income despite bond-sale losses. It also indicated plans to raise its annual dividend by ¥9 from the previous fiscal year, strengthening shareholder returns.
• Aozora increased revenue across the company, including its investment banking division. Net income rose 81.7% to ¥11.5 billion, the fastest rate in the group. It forecast an annual dividend of ¥100, including ¥25 at the end of the first quarter.

Higher interest rates are a tailwind, but they can also pressure banks’ earnings and asset values.

• Rising deposit rates. Higher interest payments to depositors could squeeze margins if lending rates do not rise as quickly.
• Falling bond prices. Existing bond prices decline when rates rise. Chiba Bank recorded a ¥29.1 billion loss on government bonds and other securities, while Yokohama FG also incurred bond-sale losses.
• Reliance on one-off sales gains. When gains from stock and other securities sales boost profit, as at Shizuoka FG, there is no guarantee the same income will be available in the next period.
• Borrower credit risk. Changes in economic conditions or interest rates could increase repayment burdens for companies and households, potentially raising credit costs.
• Regional population decline and competition. Demand for funding from local businesses and individuals may weaken, while competition from other banks and online lenders continues. Building revenue sources beyond lending remains a challenge.

FFG led in revenue at ¥151.9 billion, up 20.1% year on year. Shizuoka FG, however, had the fastest revenue growth, at 49.0%. It also topped the profit ranking at ¥47 billion, up 51.0%, showing that the leaders by scale and growth momentum were different banks.

The average operating profit margin among the four banks with available figures was 27.8%. Shizuoka FG’s 34.3% was above that level, while Aozora’s was 20.7%. Yokohama FG was excluded because its margin was unavailable.

Rising rates benefited banks broadly, but controlling deposit costs and bond losses while growing recurring income, including loan interest, is likely to determine which banks pull ahead.

Banking involves more than deposits and loans. Revenue streams are expanding to include asset management shaped by changing interest rates, corporate funding support and solutions to challenges facing regional businesses.

In this period, Shizuoka FG stood out for its profit margin, FFG for revenue and Aozora for net-income growth. Those comparing potential employers should look beyond business scale to the expertise they can build in areas such as corporate sales, investment management, investment banking and digital services.