Norinchukin’s planned foreign bond divestment will hurt profits

The bank has about $13.63b (JPY2.25) in unrealized losses.

Norinchukin Bank’s plans to divest “unprofitable” foreign bonds and realize JPY2.2t in losses will hurt its profitability for the current fiscal year, warns Moody’s Ratings.

As of March 2024, the Japanese bank has JPY2.2t or over $13.625b in unrealized losses on bonds of available-for-sale securities and other money held in trust. 

The unrealized losses widened despite the fact that the bank sold some of its unprofitable foreign bonds during FY2023.

“The large unrealized losses on bonds highlight the bank's higher-than-peer average volatility because of its investment strategy, which involves managing a large pool of foreign securities, largely on an unhedged interest rate basis and funded via market funds,” Moody’s said.

Higher-for-longer interest rates will continue to hurt the bank's profitability, because foreign funding costs are higher than investment yields on a large share of the foreign bonds, the ratings agency added.

Norinchukin Bank’s common equity tier 1 (CET1) ratio at 16.4% as of end-March 2024 will provide some buffer from the risks. 

Its deposits from cooperative members are also expected to remain “solid and sticky.” Norinchukin Bank is the central financial organisation for Japan’s agricultural, forestry and fishery cooperatives.

(US$1 = JPY161.46; as of 7 July 2024, 11:35AM)