View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

FRBSF

WEEKLY LEta-EA

October 28, 1988

The Growing Presence ·of Japanese Banks
The growth of Japanese banking institutions in
California has been extraordinary, with dramatic
increases recorded in the assets, deposits, and
commercial loans of Japanese-owned banks,
agencies, and branches. In the last five years, the
assets and market share of Japanese-owned institutions in California more than doubled.
Although a series of acquisitions of existing
banks accounts for much of the rapid expansion
of Japanese-owned banks, a surge in international trade financing spurred growth atthe agencies
of Japanese banks.

percent for domestic banks. Ordinarily, such dependence on "hotmoney"raisesconterns about
an institution's ability to fund itself during difficu.lt times, but the financial strength of the parent
institutions in Japan and their superior fundraising capacity in international markets tend to
allay such concerns about Japanese-owned
banks in California. Moreover, contrary to the
popular view, Japanese banks in California, as a
group/are slightly better capitalized than their
domestic counterparts. (Of course, the parent
organization can be highly levered.)

Japanese banks dominate the list of the world's
largest banks. Thus it is not surprising that many
of these prominent Japanese banks maintain
sizeable presences in the competitive California
market. Last December, nine California banks,
with combined assets of over $25 billion, were
subsidiaries of Japanese-owned banks. In addition, 24 agencies, with assets of $48.7 billion,
and two foreign branches of Japanese banks,
with assets of $2.2 billion, were operating in California, providing trade-related banking services.

Also,in keeping with Japanese banks' wholesale,
commercial banking focus, commercial and
business loans make upa large share of these
banks' asset portfolios. At the end of 1987, business loans made up29.9 percent of Japanese
banks' asset portfolio in California. In contrast,
business loans accounted for only 19.5 percent of
domestic banks' assets.

Business emphasis
A comparison of the Japariese-owned banks and
domestic banks highlights significant differences
in the two groups of banks. While there are considerable variations across both groups of banks
in their marketing emphases and their portfolios,
as a group, the Japanese-':owned banks inCalifornia tend to rely more heaVily on managed
liabilities for funding and to hold a higher proportion of commercial loans intheir asset
portfolios.
In the aggregate, Japanese banks, with their traditional focus on business and trade, typically have
had a relatively small retail deposit base and thus
have relied heavily on certificates of deposit and
such nondeposit sources of funds as Eurodollars.
Purchased funds account for one-third of Japanese banks' liabilities, compared to less than 18

However, Japanese banks recognize that one of
the attractive features of the California banking
market is the strong and growing retail market,
which provides both a ready source of lower-cost
household deposits and a strong demand for retail loans. Consequently, retail lending is growing
in. importancetoJapanese banks: Japanese banks
now make single family home loans and loans to
individuals (including automobile loans, personal
loans, and credit cards) in about equal volumes.
Nonetheless, in the aggregate, retail loansstill
are a much smaller proportion of assets (under
20 percent) at the Japanese banks than at domestic banks (nearly 28 percent). But as Japanese
banks become more active in local banking
markets, these portfolio differences between
Japanese-owned and domestic banks should
narrow.

California dreamin'
Japanese banks have made the California market
an important target for several reasons, including

FR8SF
a favorable location for international trade and
strong economic factors. A majority of the
trade with Japan passes through California on its
way to the
market. The surge in trade with
Japan in recent years increased the need for overseas banking services-loans, payment facilities
and deposits-on the part of Japanese firms
doing business in California. Japanese banks responded to this need by enhancing their presence in California through the growth of their
agencies and branches and through the acquisition of a number of existing domestic banks.

u.s.

u.s.

In addition to their trade-related customer base,
Japanese bankers have also found the domestic
California economy attractive in itself. Size, product diversity, and a record of rapid growth and
economic stability provide favorable conditions
for banking. Moreover, California's state-wide
branching structure allows banks to generate a
stable and relatively low cost retail. deposit base
and a strong bas.e for middle market commercial
lending.
Finally, the expansion of Japanese banks in California in recent years is associated with the
liberalization of Japan's capital markets. Liberalized capital markets in Japan have freed funds
for overseas investments, such as bank acquisitions, at a time when the value of the Yen relative
to the dollar made U.S. investments attractive.

by Bank ofTokyo's subsidiary, California First,
which has already received regulatory approvals,
will push thattotal market share to over 24 percent of total assets. And in commercial lending,
which is their mainstay, Japanese banks captured
nearly one-quarter of the market, not counting
the impact on market share from the pending acquisition of Union Bank.
Japanese banks now own four of the top ten
banks in the state: California First (6th largest,
$6.3 billion in assets as of 6-30-88), Sanwa
Bank California (7th largest, $5.9 billion), Bank
of California (8th largest, $4.9 billion), and
Sumitomo Bank of California (10th largest, $3.5
billion) and are in the process of acquiring the
fifth largest ($8.7 billion), Union Bank.

Shift in foreign ownership
The expansion of Japanese banks clearly has
changed California banking. However, the expanding presence of Japanese banks has had
only a small impact on the market share of all
foreign banking institutions in California. Over
the last five years, foreign banks' market share
increased only modestly, from 30.8 percent to
32.3 percent. Rather than wresting market share
from domestic banks, Japanese banks essentially
have replaced the British banks as the dominant
foreign banking power in the California market.

Headstart
Market share
The growth of the Japanese banks, agencies, and
branches in California has been extraordinary.
Measures of traditional market presence-assets,
loans, deposits-all show the dramatic increases.
Between 1982 and 1987 the assets of Japaneseowned institutions (banks, agencies and
branches of foreign banks) in California have
more than doubled, growing from $34.6 billion
to $76.1 billion. Market share, which was 10.7
percent of the total assets of all banks, agencies
and branches in 1982, rose to 21.7 percent by
the end of 1987. The acquisition of Union Bank

J

One bonus of Japanese banks' recent expansion
in the California market is that they now have a
headstart over out-of-state banks in assembling
and consolidating a statewide network of banks
and branches. This will place them in an enviable position in 1991 when California.is opened
to out-of-state competitors. As the picture now
stands, Japanese banks' investment in California
should be well rewarded, both in terms of current profits and in future franchise value.

Gary C. Zimmerman
Economist

REGIONAL BANKING DATA
June 30, 1988
(Not Seasonally Adjusted, Preliminary Data)
DISTRICT

OREGON

UTAH

WASH

--------

ARIZONA
--------

CALIF
--------

HAWAII
--------

IDAHO
--------

NEVADA
--------

415,343
42,139
373,204
288,205
34,531
253,674
103,949
74,266
51,262
5,013
98
41,788
13,697
14,909
13,182
391,991
349,852
332,906
34,366
298,540
75,944
222,596
35,816
23,352
8,454
32,571
133,421
104,369

4,641
1
4,641
2,429
1
2,428
1,008
928
201
8
N/A
1,184
772
198
213
4,202
4,201
3,670
1
3,669
878
2,791
473
440
61
26
361
38

27,421
N/A
27,421
19,691
N/A
19,691
8,704
4,831
4,086
486
52
3,554
1,493
430
1,631
25,685
25,685
23,325
N/A
23,325
4,957
18,368
1,992
1,736
381
711
5,693
282

289,626
39,871
249,755
202,370
33,199
169,171
72,856
50,859
29,795
2,515
43
22,845
6,425
10,773
5,647
274,595
234,723
232,838
32,360
200,478
55,282
145,197
22,188
15,032
6,932
28,741
107,600
103,438

12,331
865
11,466
7,280
629
6,651
3,381
1,698
1,132
19
0
2,514
1,015
490
1,009
11,523
10,657
10,748
615
10,133
1,751
8,382
272
809
108
332
3,350
66

7,213
N/A
7,213
4,727
N/A
4,727
1,187
1,360
1,229
606
N/A
1,536
623
413
500
6,705
6,705
5,735
N/A
5,735
912
4,823
898
509
84
105
820
37

11,259
N/A
11,259
8,433
N/A
8,433
1,606
1,376
5,169
19
N/A
1,784
596
390
797
10,576
10,576
5,961
N/A
5,961
1,747
4,214
4,177
683
181
168
1,349
51

19,408
0
19,408
12,234
36
12,197
3,652
4,917
2,498
359
0
3,292
976
725
1,591
18,173
18,172
14,971
N/A
14,971
3,041
11,930
2,426
1,236
175
548
3,899
127

10,657
109
10,548
7,112
N/A
7,112
2,848
1,784
1,947
116
2
1,713
467
656
589
9,868
9,759
8,473
122
8,351
1,590
6,762
934
789
133
298
1,524
68

23,264
8,707
6,513
5,205
885
1
3,367
1,329
832
1,206
30,665
29,372
27,185
1,269
25,915
5,785
20,130
2,456
2,120
399
1,643
8,825
262

2.93
1.02
0.39
0.76
1.75
0.28
5.56
5.43
5.11
2.54
12.90

2.51
9.78
19.70
4.13
0.79
N/A
21.20
34.30
16.40
2.30
4.73

1.93
1.05
0.43
0.60
1.90
0.86
6.50
9.59
6.44
1.87
5.41

3.43
0.89
0.15
0.61
1.90
-.26
5.84
4.64
5.26
2.67
19.00

1.48
0.18
0.04
0.19
0.28
0.97
2.20
1.87
2.98
2.12
26.90

1.78
0.62
0.29
0.95
0.66
0.85
2.83
4.19
2.63
1.83
4.24

2.15
1.97
0.37
2.11
2.46
N/A
3.89
4.34
5.22
3.58
0.79

1.43
0.98
0.40
0.79
1.16
1.51
3.27
5.77
2.45
1.65
7.09

1.88
1.16
0.54
1.61
0.79
0.68
4.63
7.02
3.50
2.04
5.80

1.67
1.15
0.26
1.69
1.32
0.77
4.37
5.59
4.55
2.11
6.05

TOTAL
20,869
INTEREST
17,470
FEES & CHARGES
996
EXPENSES
TOTAL
18,504
INTEREST
9,136
SALARIES
3,863
LOAN LOSS PROV. 1,203
OTHER
4,302
INCOME BEFORE TAXES
2,356
TAXES
854
NET INCOME
1,630
ROA (%)
0.80
ROE (%)
15.50

201
170
9
230
105
46
14
65
-29
1
-29
-1.30
-13.00

1,262
1,093
69
1,178
598
255
90
235
83
17
70
0.56
8.94

14,641
12,079
685
12,962
6,351
2,748
837
3,026
1,674
656
1,110
0.77
16.50

581
510
16
487
273
109
13
92
94
29
65
1.06
16.40

348
311
20
304
169
53
14
69
45
13
31
0.87
13.50

713
629
23
577
263
83
72
159
136
41
95
1.73
25.70

892
776
49
759
391
162
35
172
131
38
94
1.03
17.10

541
478
29
504
254
80
47
123
37
9
28
0.54
9.37

1,690
1,425
96
1,505
732
328
84
361
185
48
166
1.02
17.80

ASSETS

TOTAL
FOREIGN
DOMESTIC
LOANS
TOTAL
FOREIGN
DOMESTIC
REAL ESTATE
COMMERCIAL
CONSUMER
AGRICULTURE
INTERNATIONL
SECURITIES TOTAL
U.S. T.S.
SECONDARY MKT.
OTHER SEC.
LIABILITIES TOTAL
DOMESTIC
DEPOSITS
TOTAL
FOREIGN
DOMESTIC
DEMAND
TIME & SAV.
OTHER BORROWINGS
EQUITY CAPITAL
LOAN LOSS RESERVE
STANDBY LETTERS OF CREDIT
LOAN COMMITTMENTS
LOANS SOLD

LOAN LOSS RESERVE (ALL BANKS)
NET CHARGEOFFS, TOTAL
REAL ESTATE
COMMERCIAL
CONSUMER
AGRICULTURE
PAST DUE & NONACCRUAL, TOTAL
REAL ESTATE
COMMERCIAL
CONSUMER
AGRICULTURE

INCOME

ALASKA

32,785
1,293
31,493
23,929

666

Opinions expressed in this newsletter do not necessarily reflect the views of the management of the Federal Reserve Bank of
San Francisco, or of the Board of Governors of the Federal Reserve System.
Editorial comments may be addressed to the editor (Barbara Bennett) or to the author.... Free copies of Federal Reserve
publications can be obtained from the Public Information Department, Federal Reserve Bank of San Francisco, P.O. Box 7702,
San Francisco 94120. Phone (415) 974-2246.

)

uo~6U!4S0m 40~n

040PI

uo6*lJO

HomoH O!UJoJ!l0)

O)SI)UOJ~

JO
'J!)!!) 'O;)SpU!!J~ U!!S

0>tsol~

UOS

~U08

aAJaSa~ IOJapa~

C:SL 'ON lIW~Bd
mYd
~~Y.LSOd 's'n
llYW UYH )I1na

~uaw~Jodaa 4)JOasa~

DISTRICT
DEPOSIT TYPE

OpOA*lU

ouoz!J~

ALASKA

ARIZONA

CALIF

HAWAII

CB SL CU

CB SL CU

CB SL CU

CB SL CU

CB SL CU

TOTAL DEPOSITS
46
DEMAND
94
NOW
60
SAVINGS & MMDA
57
SMALL TIME
26
LARGE TIME
33
cB = COMMERCIAL BANKS;

50
4
34
34
72
66
SL

4
2
6
8
3
1

=

IDAHO
CB SL CU

71 10 19
53 43 4
42 55 3
65 30 6
98 1 1
93 4 3
93 5 2
94 3 3
49 16 35
63 29 8
56 39 5
72 24 4
53 9 38
64 28 7
55 38 7
60 30 11
71 19 10
40 58 2
20 78 2
40 57 3
91 7 2
38 61 1
28 71 1
81 17 2
SAVINGS & LOANS AND MUTUAL SAVINGS BANKS; CU

TYPE OF ACCOUNT OR LOAN

DATE

US

DISTRICT

ARIZONA

=

86 11
99 1
86 7
86 9
81 17
84 11
CREDIT

CALIF

NEVADA

OREGON

UTAH

WASH

CB SL CU

CB SL CU

CB SL CU

CB SL CU

4
64 33 4
66
0 100 0 0
96
6
79 17 4
77
5
67 27 6
69
2
35 63 3
49
4
54 46 0
64
UNIONS;
MAY NOT

HAWAII

IDAHO

29
2
18
22
48
32
SUM

5
58 33 9
3
91 6 3
5
68 22 10
9
60 19 20
3
41 54 5
3
65 33 3
TO 100% DUE TO

OREGON

UTAH

54 39 7
95 4 1
66 22 12
54 32 15
40 57 3
50 49 1
ROUNDING

WASH

----.--------------------------------------------------,;.-------------------;,...--------------------------------------------------MONEY MARKET DEPOSIT ACCOUNTS

6-MONTH CERTIFICATES

2-1/2 YEAR CERTIFICATES

JUN88
JUL88
AUG88
JUN88
JUL88
AUG88
JUN88
JUL88
AUG88

5.45
5.49
5.60
6.82
6.99
7.26
7.79
7.90
8.11

5.19
5.22
5.32
6.24
6.34
6.62
7.48
7.53
7.70

5.04
5.11
5.14
6.10
6.16
6.32
7.45
7.58
7.85

5.24
5.28
5.34
6.26
6.35
6.54
7.21
7.23
7.47

5.18
5.18
5.26
6.04
6.11
6.34
7.64
7.64
7.72

5.07
5.11
5.19
6.49
6.76
7.20
7.62
7.84
7.97

COMMERCIAL LOANS, SHORT-TERM
11.24
AUG88
9.75
9.80
9.62
10.92
9.45
AVERAGE MATURITY (DAYS)
107
49
127
49
108
29
COMMERCIAL LOANS, LONG-TERM
11.19
AUG88
10.44
10.78
10.86
10.73
10.51
AVERAGE MATURITY (MONTHS)
81
16
44
47
30
28
CONSTRUCTION LOANS
AUG88
NIA
10.54
. 10.73
NIA
10.79
11.43
AVERAGE MATURITY (MONTHS)
NIA
NIA
11
12
12
NIA
LOANS TO FARMERS
11.52
AUG88
11.50
8.28
10.25
8.66
10.48
AVERAGE MATURITY (MONTHS)
5
7
20
9
1
8
CONSUMER LOANS, AUTOMOBILE
12.00
AUG88
10.93
11.52
NIA
11.63
NIA
CONSUMER LOANS, PERSONAL
AUG88
12.00
14.81
19.17
NIA
16.42
NIA
CONSUMER LOANS, CREDIT CARDS
NIA
AUG88
17.79
17.91
NIA
19.12
NIA
SOURCES: SURVEY OF TERMS OF BANK LENDING & TERMS OF CONSUMER CREDIT; MOST COMMON INTEREST RATES

J

4.85
4.86
4.92
6.50
6.50
6.81
7.75
7.84
8.09

5.60
5.65
5.88
6.57
6.71
7.30
7.38
7.38
7.74

5.08
5.08
5.08
6.18
6.36
6.46
7.29
7.24
7.30

10.39
9.22
9.61
80
143
114
11.69
11.27
NIA
63
49
NIA
9.62
NIA
NIA
11
NIA
NIA
10.67
11.20
9.69
5
6
11
10;11
11.50
12.62
18.00
17.10
14.38
15.75
18.00
19.24
ON SELECTED ACCOUNTS