Hirogin Holdings, Inc.

Business Details

Hiroshima Bank, Ltd. conducts deposit-taking, lending, securities investment, foreign exchange and other operations. Its primary markets are Hiroshima Prefecture and three neighboring prefectures (Okayama, Yamaguchi, and Ehime), with individuals, corporations, and local public bodies as its customer base. While net interest income is the main revenue source, fee business income and specific transaction income also contribute to revenue diversification. In FY2026 (ending March 2026), interest income from loans and interest and dividends on securities increased, driving a significant expansion in interest income on fund management, and segment profit reached a new record high.

Recent Overview

Record profits for the second consecutive year. Loan interest income and securities revenue expanded significantly, with core net business profit reaching ¥63.7 billion.

In FY2026 (ending March 2026), Hiroshima Bank's non-consolidated core net business profit reached a record high of ¥63,715 million (up ¥14,681 million, or +29.9%, year-on-year). Interest income on loans was ¥105,192 million (versus ¥90,903 million in the prior fiscal year), and interest and dividends on securities were ¥39,026 million (versus ¥28,713 million in the prior fiscal year), reflecting a substantial increase in net interest income. On the other hand, gains/losses on bonds including JGBs, related to the disposal of low-yield bonds, widened to a loss of ¥18,138 million (versus a loss of ¥6,294 million in the prior fiscal year). A new provision for individual allowance for doubtful accounts of ¥7,129 million was recorded, and credit costs increased to ¥2.7 billion (up ¥0.4 billion year-on-year). The non-performing loan ratio rose to 1.12% (from 1.02% at the end of the prior fiscal year), while the coverage ratio against disclosed claims improved to 79.2% (from 78.4% at the end of the prior fiscal year).

Key Products

Growth Drivers

• Improved loan yields (all branches: 1.10%, versus 1.10% in the prior fiscal year; domestic operations segment: 1.09%) and expanded overall interest margin (all branches: 0.34%, up 0.11 percentage points year-on-year), driven by the Bank of Japan's monetary policy normalization (rate hikes)
• Steady growth in business loan balances (bank-only end-of-period balance of ¥5,291.1 billion, up ¥503.0 billion from the end of the prior fiscal year, +10.5% annualized), driven by accumulation of loans to local SMEs, ship finance, and high-yield loans outside the local area
• Improved yields through securities portfolio restructuring (1.00% net of external funding costs, up 0.33 percentage points year-on-year), achieving the Mid-Term Plan 2024 targets of ¥2 trillion balance and yield of 1% or more ahead of schedule
• Expansion in fee and commission income (bank-only: ¥29,577 million, up ¥1,523 million year-on-year), driven by increased corporate solutions revenue (¥8.6 billion, up ¥1.0 billion year-on-year) and asset management revenue centered on Hirogin Securities
• Continued growth investment centered on human capital and DX investment, driving top-line growth and improving core OHR (improved for three consecutive years: 57.7% → 54.0% → 49.3%)
• Upward revision of FY2028 targets under the revised Mid-Term Plan 2024 (net income attributable to owners of the parent: ¥57.0 billion → ¥70.0 billion; consolidated ROE: 9.5% or more → 11% or more), and continued policy of approximately 6% annual growth in business loans

Risks

• Accelerated increase in funding costs (interest expense on deposits) due to additional Bank of Japan rate hikes: interest expense on deposits more than doubled to ¥22,945 million (from ¥10,235 million in the prior fiscal year), with risk of further funding cost increases amid future rate hikes
• Risk of increased credit costs: a new provision for individual allowance for doubtful accounts of ¥7,129 million was recorded; the non-performing loan ratio rose to 1.12% (from 1.02% at the end of the prior fiscal year); doubtful claims increased substantially from ¥45,233 million to ¥57,549 million
• Interest rate risk in the securities portfolio: gains/losses on bonds including JGBs widened to a loss of ¥18,138 million (versus a loss of ¥6,294 million in the prior fiscal year), with losses on sales of ¥22,048 million arising from the disposal of low-yield bonds
• Potential for deteriorating business conditions among local manufacturers (automobiles, shipbuilding, etc.) due to geopolitical risks such as U.S. tariff policy, which could spread to credit risk among borrowers (ship-related loans remain elevated at ¥1,116,640 million)
• Substantial IT investment burden and migration risk associated with the transition to the MEJAR core banking system, scheduled to launch in January 2031; property expenses have been on an increasing trend, at ¥28,994 million (versus ¥26,861 million in the prior fiscal year)
• Risk of deviation from the market scenario assumptions underlying earnings forecasts (Bank of Japan policy rate of 1.25%, USD/JPY at ¥150, Nikkei Average at 55,000)