Japanese megabanks record biggest gains in market cap among Asian lenders

Japan's three megabanks lodged the highest gains in market capitalization during the first quarter among Asia-Pacific lenders as the country's equities rallied once more.

Sumitomo Mitsui Financial Group Inc. saw the highest increase, at 27.91% to US$77.41 billion, as the bank moved up two spots to 12th among Asia-Pacific's 20 largest banks by market cap, according to S&P Global Market Intelligence data. At the same time, Mitsubishi UFJ Financial Group Inc.'s market cap increased 26.90% quarter over quarter to US$121.83 billion to remain in seventh place, while Mizuho Financial Group Inc. saw its market cap move up 26.26% to US$51.05 billion to enter the top 20 in bottom spot.

Japanese equities have experienced a rally in recent months, with the benchmark Nikkei 225 reaching its highest level and crossing the 40,000 mark in March. Despite the Nikkei 225 cooling in recent days, Japanese banks are likely to outperform the TOPIX over 2024 as a whole, Nomura analysts wrote in a March 19 note.

In another gain for lenders, the Bank of Japan ended its negative interest rate policy in March and will guide its short-term policy rate in a range of 0% to 0.1% from the previous negative 0.1% introduced in 2016. A first rate hike since 2007 is expected to give Japanese banks a boost to their net interest margins, and consequently their profits.

The end of the negative interest rate policy will "result in even further improvements to shareholder returns," the Nomura analysts said. Nomura also expects additional rate hikes from the Bank of Japan in the second half of 2024.

HDFC declines

In contrast to its regional peers, HDFC Bank Ltd. was the only lender in the top 20 to see a decline in market cap. The Indian bank's mixed set of results in the October-to-December quarter saw its market cap drop more than 15% to US$131.92 billion as it slipped to fifth from third.

Shares at the lender, the biggest Indian bank by market cap and the only bank outside of China to make the top five, fell 7% after it reported its fiscal third quarter results in January. Despite reporting a 34% year-over-year increase in net profit, investors were unimpressed with the bank's outlook on loan growth and margins, The Economic Times reported. Nomura analysts noted that investors largely believe that HDFC Bank's stock has bottomed.

"Investors largely believe that the worst may be behind" for HDFC Bank's share price, Nomura analysts wrote in a March 26 note. "Most investors are also comfortable with a potential low-teens loan growth outlook over the near to medium term, as the bank gradually brings down its loan-to-deposit ratio."

Still, HDFC Bank is not Nomura's top pick in the sector. "While we do concur that HDFC Bank stock may have bottomed, it is still not a preferred pick for us in the sector, as we do not see a strong case for meaningful upside amid loan growth moderation," the analysts said.

Two other Indian banks made it to the top 20 list. State Bank of India, the country's largest bank by assets, had the largest increase in market cap outside of the three Japanese megabanks. The state-owned bank's market cap rose 17.18% to US$80.53 billion. ICICI Bank Ltd., meanwhile, saw its market cap increase 9.81% to US$92.06 billion.

Nomura analysts noted that there was strong interest in state-owned banks as investors believe that they "are better positioned amid the current tight liquidity scenario, owing to their lower loan-to-deposit ratios."

All lenders in the top 20 saw increases in market cap as the region maintained its economic momentum. Strong domestic consumption and increasing trade flows will keep growth on track, at 4.4% for 2024 and 4.6% for 2025, according to a March 27 S&P Global Ratings report on the region's credit outlook.

Industrial and Commercial Bank of China Ltd. remained the biggest bank in the region, with a market cap of US$239.55 billion. Agricultural Bank of China Ltd. had a market cap of US$197.17 billion, up 12.41% from the previous quarter, to stay in second place. Bank of China Ltd. swapped places with HDFC Bank to come in third, with a market cap of US$162.25 billion. China Construction Bank Corp. rounded out the top four with a market cap of US$154.06 billion.