Japan’s Concordia FG sees strong loan growth and improving profits

Its strong franchise base in Kanagawa Prefecture is an advantage.

Japan’s Concordia Financial Group (CFG) is expected to maintain strong loan quality but still weak profitability through 2025.

CFG, a Japanese finance holding company that owns Bank of Yokohama and Bank of East Japan, should be able to maintain its “strong loan quality and liquidity” over the next 12-18 months, Moody’s Ratings said in a report where it affirmed CFG’s A3  long-term domestic currency rating.

CFG notably owns Bank of Yokohama, which accounts for 89% of CFG’s consolidated total assets as of March 2024.

CFG’s problem loan ratio remained at a low 0.6% as of end-March 2024. This is despite holding a sizable portion of loans in Japan’s real estate and leasing sector. These sectors account for 30.4% of CFG’s loans during the period.

“This is because of Kanagawa Prefecture's favorable location in the affluent Greater Tokyo Metropolitan area, which has a large and well-diversified economy compared with other prefectures,” Moody’s said in a report.

Liquidity remains strong, the ratings agency added, supported by CFG’s solid deposit franchise. 

Bank of Yokohama makes up 26.5% of deposits in its home market Kanagawa Prefecture.

Profitability is expected to gradually improve over the next 12-18 months, backed by continued loan growth, cost-control efforts, and steady net fee and commission income, Moody’s Ratings. 

“We also expect CFG's profitability to gradually improve over the next 12-18 months, backed by continued loan growth, cost-control efforts as well as steady net fee and commission income through sales of investment-type financial products and corporate-related services,” Moody’s said.

“Furthermore, a rise in domestic interest rates in Japan will help improve CFG's net interest income through margin expansion, outweighing increases in its loan-loss provision,” the ratings agency said.