Japanese lenders likely to grow margins; Asia-Pacific peers face compression

Japanese megabanks could increase their net interest margins over the next two years, diverging from a trend across Asia-Pacific, as the nation's central bank is expected to further raise interest rates.

All four Japan-based lenders among the 25 largest banks by assets in the region are projected to post gains in net interest margin (NIM) in calendar years 2026 and 2027, according to Visible Alpha estimates.

Mitsubishi UFJ Financial Group Inc., Japan's biggest lender by assets, is projected to increase its NIM to 0.77% in 2026 and to 0.81% in 2027 from an estimated 0.72% in 2025. Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. are expected to see a roughly 20-basis-point increase in their NIMs between 2023 and 2027, while that of Japan Post Bank Co. Ltd. could more than double during the period.

"As long as the Bank of Japan (BOJ) raises interest rates, the banks' NIMs will continue to rise," said Toyoki Sameshima, a senior analyst at SBI Securities Co. "Their NIMs overseas may shrink if the Federal Reserve moves on a rate cut path," Sameshima said, adding, "but overall, the NIMs should improve as their domestic lending surpasses overseas loans."

The Japan way

The BOJ abandoned its negative interest rate policy by raising its short-term policy rate to between zero and 0.1% from minus 0.1% in March 2024. It followed with further rate increases, taking the benchmark rate to about 0.75% by December 2025, the highest in three decades.

Sameshima expects the BOJ to raise its policy rate again as early as July, and then to increase it every six months, with rates eventually reaching a terminal level of 1.25% to 1.5% over the next few years.

However, the timing of the BOJ's next move has been muddled by the Japanese yen's steady decline against the US dollar since April 2025; a spike in local bond yields, with the 10-year government bond touching a 27-year high on Jan. 20; and Prime Minister Sanae Takaichi calling for snap elections to be held in February.

"The outcome of the election, subsequent fiscal policy management and the reaction in financial markets could create fresh uncertainties for the BOJ's outlook," Nomura said in a Jan. 15 note. In line with Nomura's expectation, the central bank left its policy rate unchanged at its Jan. 22–23 meeting. The brokerage estimates the BOJ will "pause in 2026, followed by two more hikes in 2027," with a weaker yen being "a risk."

The rest

On the other hand, most major central banks in Asia-Pacific have been easing monetary policy as inflation has subsided across the region and post-pandemic growth momentum has weakened. The cycle was set in motion when the US Federal Reserve announced a 50-basis-point rate cut in September 2024, saying "the time has come for policy to adjust."

Falling policy rates weighed on banks' NIMs as lenders had to pass on rate cuts to borrowers to remain competitive. Deposits are also getting repriced, though with a lag. The median NIM for the region's 25 largest banks is estimated to narrow by 6 basis points in 2025 to 1.34%, Visible Alpha data shows.

Nomura expects the easing cycle across Asia to be "largely complete, despite low inflation, reflecting improving growth, near-neutral policy rates and the need to conserve ammunition," according to a recent note. Analysts, however, see "a North-South monetary policy divide forming, with an extended hold in [South] Korea, New Zealand and Australia, but 50-75 bps of further rate cuts in the South (Thailand, India, Indonesia and the Philippines)."

The aftereffects of the easing cycle are expected to sustain pressure on margins for at least the next two years, with NIMs projected to stabilize at 1.29% in 2027 for banks in the sample, according to consensus estimates on Visible Alpha.

Chinese banks

The People's Bank of China (PBoC) held its one- and five-year loan prime rates steady on Jan. 20, though the central bank has recently used other easing tools. The government reported on Jan. 19 that gross domestic product grew 4.5% year over year in the October–December 2025 period, the slowest expansion in three years. The world's second-largest economy, however, achieved its full-year growth target of about 5%.

There remains scope for cuts to the policy rate and the reverse repo rate in 2026, PBoC Deputy Governor Zou Lan said in a Jan. 15 news conference, citing stabilizing bank NIMs and an improving foreign exchange environment.

The PBoC announced a targeted easing package, including a new 1 trillion yuan program for private enterprises. The PBoC also cut interest rates on all structural and relending facilities to help reduce banks' funding costs, stabilize margins and create room for further rate cuts, according to Zou.

"The struggling property market and weakening retail credit demands have yet to see signs of recovery in 2026," said Iris Tan, senior equity analyst at Morningstar. Further margin headwinds are expected in 2026 and beyond due to an unfavorable shift in the loan mix toward a lower share of high-yielding retail loans, Tan said.

NIMs at most of the 15 Chinese banks on the list are expected to be lower in 2026 before stabilizing in 2027. Bank of China Ltd.'s NIM is projected to ease by 3 bps in 2026 to 1.16%, before stabilizing at 1.15% in 2027, while Agricultural Bank of China is expected to post a 4-bps contraction to 1.23% in 2026 before levelling off at 1.21% in 2027, the data shows.

– Access financial highlights for MUFG, SMFG and Mizuho. – Access aggregate financial highlights for Chinese banks on S&P Capital IQ Pro. – Read more data dispatches on Asia-Pacific financials.

As of Jan. 23, US$1 was equivalent to 6.96 Chinese yuan.

Visible Alpha is a part of S&P Global Market Intelligence.