Small Japanese banks among best performers in Asia-Pacific by total returns

Small Japanese lenders were among the best-performing stocks in Asia-Pacific during the January–March quarter, as rising expectations for higher interest rates drew investors to the financial sector.

Eight out of the top 15 top performers in the region by total return in the first quarter of 2025 were Japanese banks, according to data compiled by S&P Global Market Intelligence. Rakuten Bank Ltd. posted a 45.6% gain in its total returns, placing it third on the list. It was followed by The Yamagata Bank Ltd., which posted a 43.5% increase, and The Shiga Bank Ltd., which recorded a 35% gain, the data showed.

Two Philippine lenders stood out as outliers: Philippine National Bank, with total returns surging 82.8% to secure the top position on the list, and China Banking Corp., which came in second with a 46.5% gain during the quarter.

Rate boost

Japanese lenders have benefited from rising interest rates in the country, which have helped to enhance their net interest margins. The Bank of Japan raised its benchmark interest rate to 0.5%, the highest since 2008, on Jan. 24, marking the third hike since the central bank ended its negative interest rate policy in March 2024. The TOPIX Banks Index, a benchmark that tracks banking stocks listed on the Tokyo Stock Exchange, rose 6.3% to 390.34 in the first quarter of 2025.

On April 3, the index tumbled 7.2%, the largest drop in eight months, amid concerns that the global tariff measures announced by US President Donald Trump could negatively affect the Japanese economy and exports, potentially restricting the Bank of Japan's ability to normalize its monetary policy.

"We think tariffs will put downward pressure on exports, but with ongoing wage hikes, we think a recession can be avoided even if the economy slows," Nomura analysts wrote in an April 5 note. "While we see considerable uncertainty, we retain our forecasts for rate hikes in July 2025 and January 2026."

As of the end of March, Rakuten Bank had a market capitalization of $7.50 billion, compared to Mitsubishi UFJ Financial Group Inc.'s $154.93 billion, the biggest among banks in the country. The Yamagata Bank's market capitalization was $300 million, while that of The Shiga Bank was $1.64 billion, Market Intelligence data showed.

Worst performers

Five Indian banks and four Indonesian peers were among the 10 worst-performing banking stocks in the region during the first quarter, according to Market Intelligence data.

ESAF Small Finance Bank, a small lender based in India's southern Kerala state, posted a 41.5% slump in total returns, the worst decline among the regional peers. Jakarta-based PT Bank Jago Tbk's total returns fell 39.7%.