Rakuten Bank to Refrain From JGB Buying as More Rate Hikes Seen
The lender, a unit of Japan's e-commerce giant Rakuten Group Inc., has seen its total deposits almost triple from five years ago to ¥11.7 trillion ($79 billion) at the end of June, as its online banking services attract more customers. While the deposits are dwarfed by those of Japan's biggest lenders, Rakuten Bank's fast-growing cash pool is pushing it to look for investments.
Japan's sovereign debt looks out of the picture for now due to volatility in the market. The bank shied away from making any fresh JGB purchases for investment during the first six months of the year. It held about ¥617 billion of JGBs at the end of June that it bought to hold until maturity, according to the bank's data.
'We're not going for any aggressive buying of JGBs until we've seen at least another rate hike or two,' the bank's Chief Executive Officer Tomotaka Torin said in an interview. 'Our focus is on maintaining an operation that won't suffer setbacks against rising yields.'
Japan has been at the center of routs in global markets this year, with yields surging, particularly for longer-maturity bonds. Investors in JGBs are still adjusting to the Bank of Japan shifting to gradual monetary tightening from negative interest rates, and many financial firms are staying away from bonds for now.
BOJ watchers are becoming more convinced the next increase in borrowing costs is coming closer due to an uptick in inflation expectations, according to a recent Bloomberg survey of analysts. Overnight indexed swaps have fully priced in the possibility the BOJ will raise interest rates by 25 basis points by April.
Torin said the bank will apply the same methods in managing mortgage loan products. The bank can't afford to provide ultra-low interest rate mortgages at a time when yields are set to climb, Torin said. Once profit margins have normalized following an increase in interest rates, 'that'd be the time for us to accelerate' lending, he said.
The bank's total loan balance including credit card financing stood at ¥4.76 trillion at the end of June, up about 12% from a year ago.
Finance businesses including Rakuten Bank are a growing part of Rakuten Group's operations with the segment accounting for more than half of the group's earnings before interest, taxes, depreciation and amortization, or Ebitda.
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