Japan regional banks outperform Asian peers in Q2 total returns

Small Japanese regional banks logged some of the highest total returns among Asia-Pacific lenders in the quarter ended June 30 as they seek to boost shareholder returns amid growing expectations for an interest rate hike by the Bank of Japan.

Japanese regional banks dominated the list of the 15 Asia-Pacific bank stocks with the highest total returns in the second quarter, occupying 10 slots, according to data compiled by S&P Global Market Intelligence. Hokkoku Financial Holdings Inc. came in second on the list, behind Indonesia's P.T. Bank Pan Indonesia Tbk, logging total stock returns of 50.65%, while Senshu Ikeda Holdings Inc. secured the 14th slot with total returns of 15.61%. The First Bank of Toyama Ltd. and Tokyo Kiraboshi Financial Group Inc. logged returns of more than 30% during the quarter.

"Supporting their share prices is basically expectations that the interest rates could be raised" by Japan's central bank, SBI Securities senior analyst Toyoki Sameshima told Market Intelligence. Some banks are also boosting shareholder returns and Hokkoku Financial "is typical," Sameshima said.

In April, Hokkoku Financial announced plans to achieve a total return ratio of 40% or more through dividends and share buybacks. It also said it will also drop its cross-shareholding policy, with a plan to halve such shares over the next three years.

The First Bank of Toyama purchased its own shares in June. It also aims to increase the payment of annual dividend to ¥16 per share in the fiscal year ending March 2023, up from ¥12 per share in the previous fiscal year.

Japanese banks are facing ultra-low interest rates due to the Bank of Japan's negative rate policy and sluggish credit demand. Expectations are growing that the Bank of Japan may follow the U.S. Fed and other central banks and adjust its monetary policy to help improve lending margins and ease the yen's fall against the U.S. dollar. Some economists expect the yen's slump to breach the ¥140 mark against the dollar to trigger a change in the central bank's yield curve control designed to keep the long-term interest rates near zero.

In addition to Bank Pan Indonesia, other non-Japanese banks on the list of bank stocks with highest total returns were China's Luzhou Bank Co. Ltd., India's The Karnataka Bank Ltd., and Thailand-based Krung Thai Bank PCL.

Worst performers

Lenders from Indonesia and Vietnam were among the worst-performing bank stocks in Asia-Pacific in the second quarter, each taking five slots on the list of 15 Asia-Pacific bank stocks with the lowest total returns, according to Market Intelligence data.

Indonesia's PT Bank Neo Commerce Tbk was the worst performer, with negative stock returns of 55.83%, followed by Standard Chartered Bank (Pakistan) Ltd. and PT Bank Bumi Arta Tbk, respectively. China's Jiangxi Bank Co. Ltd. came in fourth on the list, while Indonesia's PT Bank MNC Internasional Tbk and PT Bank Jago Tbk secured the fifth and sixth spots.

Saigon - Hanoi Commercial Joint Stock Bank, Vietnam International Commercial Joint Stock Bank, Orient Commercial Joint Stock Bank, Vietnam Maritime Commercial Joint Stock Bank and Tien Phong Commercial Joint Stock Bank were the five Vietnamese banks that appeared on the worst performers' list.

The declines came as foreign investors drained $40 billion in the second quarter from seven emerging markets in Asia — Taiwan, India, South Korea, Indonesia, Malaysia, Philippines and Thailand, according to a July 4 report from Bloomberg News.