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Samurai, Ninja loans boom as Japan banks hunt for yield

09 September 2019 10:50 (UTC +04:00)

Japanese regional banks are increasingly lending to foreign companies and other borrowers via samurai and ninja loans as they struggle with interest rates stuck at zero and seek to diversify their customer base, APA reports citing Reuters.

Foreign companies who have long capitalized on the low cost of borrowing yen in the carry trade have also stepped up issuance of such credit as cross-currency interest rate swaps tumble.

“Regional banks have less opportunity to lend because the number of local companies is falling, and we have low margins because interest rates are so low,” said Kazuyuki Ikegami, senior counselor in the Tokyo branch of Bank of Kyoto Ltd, which is based in Western Japan.

“We need the opportunities to lend that samurai loans provide us, and they’re great because they mitigate currency risk. We’re putting more people on the samurai loan market.”

Samurai loans, which are yen loans issued in Japan by foreigners, doubled to $21.5 billion last year and have continued rising this year, according to Refinitiv data.

Ninja loans, debt issued by a foreigner in Japan in any currency that usually yields more than domestic yen lending, jumped 50% in the first half of the year - the fastest pace since the first half of 2015 - according to data from LPC, a fixed income news service that is part of Refinitiv.

The trend shows Japan’s yield-starved smaller regional banks are joining the mega-banks that previously dominated these markets, as they seek opportunities to put their vast deposits to work and generate higher returns.

Japanese banks can earn more in the samurai and ninja market for any given creditor profile than they can when they lend to domestic companies.

For example, Canada’s largest pipeline operator Enbridge Inc issued a 3-year samurai loan paying 65 basis points over yen LIBOR earlier this year, according to Refinitiv. It has also sold a five-year tranche at 85 basis points over LIBOR.

Spreads on conventional loans to Japanese corporates rarely exceed 50 basis points above the benchmark rate. Japanese companies with the best credit ratings pay only a few basis points over the benchmark.

Non-Japanese companies typically in the financial services, utilities, and food and beverage sectors are exploiting the opportunity to raise near-zero loans and the opportunity to gain exposure to a broader range of investors.