Japan
The following data have been gathered by Capgemini and are part of the World Retail Banking Report published annually in March.
Macro economic indicators (2006)
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GDP at current prices and PPP
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€ 510,410 billion
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Inhabitants
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128 million
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GDP per head
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€ 3,995,949
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Economic growth rate
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1%
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Consumer confidence indicator
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47.97
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Unemployment rate
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4.10%
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Consumer price index (2005 base)
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100.3%
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Banking staff
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282,101
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Number of branches
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13,381
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Number of ATMs
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166,000
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Households savings ratio
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21.20%
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Inflation rate
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0.30%
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Interest rate, consumer credit
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6.3%-18%
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Interest rate, residential mortgage
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2.791%-3.35%
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Interest rate on long term bonds
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1.74%
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Type and size of players
Net Banking income on Top 5 banks (in billion yen) & Cost/Income Ratio (%)
Share of deposits by type of banks
• There are three large city banks, so called “mega banks” such as MUFG, SMBC, and Mizuho in Japan.
• However, overall market is still fragmented compared to other countries.
• Especially in rural areas, local banks are more tightly connected to retail customers, thus limiting influence of mega banks.
Products
Deposit and loans share of Top 10 banks
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The share is calculated within banks’ deposits only. With other depository taking institutions, such as credit union, the Post Bank, and etc., the biggest 5 banks’ share and 10 banks’ share go down to 24.7% and 28.1% respectively.
Income derived from interests vs. Fees and Commissions
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• Income derived from fees and commissions is relatively smaller compared to other countries.
• This is because the pricing strategy of retail banking is not different from that of the banking for corporate, whose profit is measured by each client, not by each service.
Trends
Macro economic trends
Due to a declining birthrate with growing elderly population, overall Japanese market is not expected to grow.
Regulations
A series of regulations and deregulations will be enforced before 2010. The regulatory changes, combined with other macro factors, may bring a paradigm shift in the retail banking business. Traditional banks should convert their strategies to meet new business circumstances.
Competitive environment
New entrants, such as Post Bank (by privatization of postal system), banks specializing in ATM operations, internet banks, and banks from retailers, are encouraging fiercer competition in retail banking market, especially among mid size banks.
Business model
• After a succession of bad-debt disposals in the late 1990`s to 2000, banks started to shift their resources into retail banking area as a new business frontier.
• Because of market fragmentation, seeking for economy of scale is not a major strategy. Instead, banks are conglomerating new lines of services, such as credit card companies and consumer finance companies, to generate economical advantage by wide coverage of services.
• Debit card is not commonly used by customers although most of banks have the service.
• Electronic money is dominated by non-bank, such as JR (Japanese Railways).
Channel
• The number of branches has decreased dramatically, from 15,300 branches in 2001 to 13,600 branches in 2006, while the number of banks has not decreased as much as other countries.
• Internet banking and mobile payment is in widespread use. Banks and mobile providers establish co-founded companies to use these products for micro-payment or credit payment to attract young prospective customers.
Cost reduction vs. revenues enhancement
• Cost reduction through restructuring, M&A, and etc. has been successful resulted in OHR improvement.
• Income derived from interest, which makes up considerable portion of net banking income for most of banks, is not expected to grow because of the macro economic trends. Also, income derived from fees and commissions became cheaper in attempting to retain new customers.
• In order to keep profitability after customer retention, Japanese banks should find new revenue bases to increase customers` “share of wallet” as well as continuous efforts in cost reduction.
