Japan
Banking sector profile — Asia-Pacific
Data as of September 2026 • TGB Intelligence Unit
Policy rate as of 7 October 2026: around 1.25% (source: Bank of Japan)
Banking sector at a glance
Structure and performance
Japan's banking system combines three global megabank groups with a large, fragmented regional sector. Domestically licensed banks held ¥1,508.5tn of assets at end-July 2026, of which city banks accounted for about half. MUFG, Sumitomo Mitsui Financial Group and Mizuho are all global systemically important banks; the next tier comprises Japan Post Bank, the agricultural co-operative apex Norinchukin, trust bank groups and Resona. The regional tier comprised 97 banks at end-March 2026, many serving shrinking local economies, and 247 shinkin banks sit beneath them.
Funding is dominated by retail and corporate deposits, and balance sheets are heavy in securities and central bank reserves after years of monetary easing. The exit from negative rates has transformed earnings: the seven major banking groups reported net profit of ¥5,974bn for the year to March 2026, up 32.7%, with net interest income up 15% on higher loan volumes and wider margins. Regional banks' net income rose 38% to ¥1,804bn, although they realised ¥1.16tn of losses on bond sales as rising yields exposed unrealised losses.
Asset quality is strong. The major banks' non-performing loan ratio was 0.64% at end-March 2026 and the regional banks' 1.54%. The four internationally active major groups reported an aggregate CET1 ratio of 12.51%, and the Bank of Japan's April 2026 macro stress test found capital sufficient to absorb a global-financial-crisis-scale shock. Lending growth has accelerated, with major banks' average loans up 8.7% year on year in June 2026 against 4.3% at regional banks.
The principal risks identified by the Bank of Japan and the FSA are concentration in real estate-related lending as property prices rise, growing exposure to overseas investment funds and non-bank financial intermediaries, interest rate risk in securities portfolios, particularly at regional banks with long-duration bond holdings, and the long-run erosion of domestic loan demand from population decline. With rates now positive, deposit pass-through and integrated asset-liability management have become central supervisory concerns.
Structural trends
The shifts shaping banking in Japan.
Rate normalisation: the Bank of Japan raised its policy rate in December 2025, June 2026 and September 2026, reaching 1.25%, lifting major banks' net interest income 15% in FY2025.
Real estate concentration: real estate-related loans, including housing loans, accounted for about 43% of banks' domestic lending at end-September 2025, according to the Bank of Japan.
Overseas fund finance: non-bank financial intermediaries made up 29.2% of Japanese banks' foreign loans, prompting FSA scrutiny of exposures to private equity, private credit and hedge funds in 2026.
Regional balance-sheet repair: regional banks realised ¥1.16tn of bond losses in the year to March 2026, largely offset by ¥1.15tn of equity gains, as rising yields exposed unrealised losses.
Leading institutions
Largest banks in Japan by total assets.
| # | Bank | Total assets (US$) | Type |
|---|---|---|---|
| 1 | Mitsubishi UFJ Financial Group | US$2.72tn | Universal |
| 2 | Sumitomo Mitsui Financial Group | US$2.07tn | Universal |
| 3 | Mizuho Financial Group | US$1.91tn | Universal |
| 4 | Japan Post Bank | US$1.43tn | Commercial |
| 5 | Norinchukin Bank | US$528.4bn | Cooperative |
| 6 | Sumitomo Mitsui Trust Group | US$518.2bn | Commercial |
| 7 | Resona Holdings | US$481.1bn | Commercial |
Total assets, consolidated, 31 March 2026 (FY2025)
Supervision and capital rules
The FSA licenses and supervises banks under the Banking Act, while the Bank of Japan conducts on-site examinations of its counterparties and macroprudential analysis. The finalised Basel III framework was introduced from end-March 2023 for banks opting in early and became applicable to all deposit-taking institutions from end-March 2025. Internationally active banks must hold a 4.5% CET1 minimum plus a 2.5% conservation buffer, with G-SIB buffers of 1.0–1.5% and a 0.5% D-SIB buffer; domestic banks face a 4% core capital requirement. Deposits are protected by the Deposit Insurance Corporation of Japan. In fiscal 2025 the FSA approved internal models for credit risk at four banking groups and for operational risk at 15.
What changed in 2026
- In April 2026 the Bank of Japan's Financial System Report judged the system stable but flagged real estate lending, loans to foreign investment funds and the oil-price shock from the Middle East.
- In June 2026 the FSA reported that the seven major banking groups earned net profit of ¥5,974bn in the year to March 2026, up 32.7%.
- In June 2026 the Bank of Japan raised its policy rate to 1.0%, and on 18 September 2026 it raised it again to 1.25% by a 7–2 vote.
- In July 2026 the FSA's supervisory report called for tighter group-wide risk management of overseas fund exposures and limits on unrealised securities losses at regional banks.
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