Federal Reserve Bank of San Francisco
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Japanese City Banks: Unwarranted Housing Loan Expectations

September 30, 2005

Author(s): Birgit Baxendale

Prime Minister Junichiro Koizumi’s recent election victory has raised hopes that the big Japanese city banks will continue to recover, but in one area – housing loans – the outlook is deteriorating. While an early Koizumi reform sparked a boom in big bank housing lending the first three years of the decade, housing loan book expansion halted last year, and margins are under increasing pressure. Intense competition, little experience in managing housing loan risk and inefficiencies in the real estate market will limit growth even if the underlying housing market recovers. Big banks will likely have to look elsewhere to boost profitability in coming years. This Asia Focus report explores how these changing expectations will affect large Japanese banks.

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