Japan is adding to the pressure on Russia. The government has banned companies from exporting a wide array of goods to Russia from next week. Japan, in common with other large, developed democracies had already frozen the assets of several Russian banks. Japanese lenders are reportedly halting dollar transactions with Sberbank. Retaliation is likely.
The export ban on luxury goods, including cars, motorcycles and liquors, grabbed headlines. Deteriorating banking relationships matter more financially.
The three largest Japanese banks, Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho, have been settling dollar transactions with Sberbank through the US. At the weekend, Japanese media reported that they would pull the plug, ceasing money transfers to boot.
Before Russia invaded Ukraine, the trio had a combined exposure of more than $8bn to Russian businesses and Japanese projects that involved them. Annual net profits from Russia are less than $340mn. That compares with forecast net profits of $17.7bn for the current fiscal year.
The state-run Japan Bank for International Cooperation has also provided financing for projects in Russia. The risk of default on loans to JBIC and the trio is growing.
Shares of local lenders have been in recovery mode. The stock price of Mizuho is up a tenth this year. The bank had the highest direct loan exposure to Russia at $1.8bn last September, according to S&P Global data. Investors hoped that a new president and chief executive would help Mizuho get past an embarrassing string of system failures — 11 outages in the span of one year. Aggressive cost cutting has been helping to boost earnings.
But for Mizuho, the rebound is fragile. It is the main financier of SoftBank Group, the risk-hungry tech investment group whose shares have fallen 40 per cent over a year, as a result of a global sell-off in tech shares.
Mizuho’s loan-loss provisions rose sharply in the quarter to December. As the Ukraine war becomes increasingly lengthy and attritional, expect higher impairments and loan loss reserves to hold Mizuho back.
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