Japan's Major Banks See First Sustained Recovery in Domestic Loan Market Share Since Bubble Burst
nashnova research
Japan's four mega-banks pushed their domestic loan share to 46.8%, rebounding from a record low — the first sustained recovery in over three decades since the bubble collapse, driven by the return of positive rates and surging corporate financing demand.
How big is the rebound?
As of August 2026, MUFG, Sumitomo Mitsui, Mizuho, and Resona held ¥280.66 trillion in domestic loans, up 7.9% year-on-year.
Their combined market share rose to 46.8%, up from a record low of 45.5% in May 2025.
This means → after sliding for over thirty years from a peak near 70% in 1991, Japan's mega-banks are gaining domestic ground for the first time.
Why is the turnaround happening now?
Two forces converged: Japan's return to positive interest rates made domestic lending profitable again, while large-company capex and M&A surged, lifting financing demand.
In plain terms = when rates were zero or negative, big banks couldn't earn a spread at home and chased growth overseas. Positive rates made domestic business worth doing again.
This reflects a broader shift in Japan's economy — from "low rates + deflation" to "positive rates + reinvestment" — and banks are direct beneficiaries.
How much new business do M&A and government investment bring?
The Bank of Japan projects large-company capex will grow 11.5% in fiscal 2026, led by semiconductor and infrastructure mega-projects.
In the first eight months of 2026, 3,473 M&A deals involving Japanese firms were completed, up 5.3% year-on-year. Toyota's acquisition of Toyota Industries alone was valued at roughly ¥5.9 trillion — a domestic record — with the three mega-banks reportedly providing over ¥3 trillion in loan financing.
This means → mega-banks hold a structural edge in underwriting and risk management for large-scale project finance. Smaller banks simply cannot compete at this scale.
What does the government's long-term spending plan signal?
Tokyo plans to invest over ¥370 trillion across 17 strategic sectors — including AI and chips — by fiscal 2040.
Hironari Nozaki, a banking professor at Toyo University, said: "The government has high expectations for mega-banks as funding providers." He expects their loan share to keep rising over the next five to ten years.
In plain terms = the government's spending pipeline is too large and too complex for anyone but the mega-banks to handle — effectively a decade-plus order book.
Why are smaller banks falling further behind?
Mega-banks' loan-to-deposit ratio stands at 57.3%, meaning ample deposit headroom. Tier-one regional banks sit at 75.8% and tier-two at 77.3% — their lending growth is constrained by deposit supply.
The squeeze is sharpest at credit unions: household deposits across Japan's 254 credit unions fell for a second straight year, the first back-to-back decline since records began in fiscal 1966.
This means → deposits are migrating from smaller institutions to mega-banks. The big four dominate not just on the lending side but are widening their advantage on the funding side too.
Can domestic profitability hold up?
The three mega-banks posted combined net interest income and related financing profit of ¥5.02 trillion for the fiscal year through March 2026 — roughly 70% of gross profit, with about 60% from domestic operations.
Some are also diversifying funding sources offshore: Sumitomo Mitsui set up a joint fund with U.S. asset manager Neuberger Berman; MUFG partnered with BlackRock and Morgan Stanley's asset management arm.
This reflects a dual-track strategy — domestic earnings recovery plus overseas optionality. Whether domestic profitability continues to improve will be the key variable for their medium-term outlook.
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