Japan Post to offer mortgages, credit cards

Japan Post said on Tuesday it was planning to offer mortgages, credit cards and small business loans following its privatisation in October this year, in a move that would introduce a massive competitor to private Japanese banks in areas they consider vital to their growth.

The post office, whose privatisation was a pet project of Junichiro Koizumi, the previous prime minister, is currently restricted to taking deposits and making limited loans. But its total deposits of Y189,314bn (USD1,616bn, EUR1,215bn, GBP832bn) mean that it will become the world’s largest bank by assets once privatised, overtaking Japan’s Mitsubishi UFJ, which has deposits of Y115,600bn.

Japan Post’s future ambitions depend on which sectors it will be allowed to enter by the ministry of internal affairs and communications and a government committee entrusted with postal privatisation.

The plans to enter personal finance businesses comes as Japan Post has suffered a slow but steady decline in depositors in the country’s persistently low interest rate environment. Its deposits topped Y200,000bn as recently as last year.

Offering mortgages would be an efficient way for Japan Post to build up its banking operations, as borrowers tend to use their mortgage provider as their main bank.

Although mortgage interest rates are low, at about 3 per cent for a 35-year fixed-rate loan, they are good quality credit as default rates remain very low in Japan, says one banker.

Personal loans and small business loans, which offer banks higher interest, are also considered promising growth areas for banks.

What business Japan Post enters after privatisation is a sensitive topic as many banks are wary of the impact that entry by the world’s largest bank could have on already fiercely competitive markets.

Japanese banks are keen to expand fee and income businesses, as their traditional corporate lending business is expected to remain sluggish.

Japan Post is already a large seller of investment trusts, which is another business banks are keen to expand as the retirement of baby-boomers is boosting demand for investment products. Last year, net sales of investment trusts by post offices reached Y561.6bn.

Regional banks, in particular, are braced for competition from the postal bank, which has close ties to regional communities through the post office network and is seen to be government-guaranteed.