The Awa Bank, Ltd.

Business Details

Centered on the Bank itself (56 branches within Tokushima Prefecture; 77 branches in total including Kansai, Kanto, and the Shikoku/Chugoku regions), the segment provides deposit-taking, lending, securities investment, foreign exchange, trust services, and other operations. Consolidated subsidiaries such as Awagin Hosho (credit guarantee), Awagin Card (credit cards), Awagin Consulting (management consulting), Awagin Connect (e-commerce mall), and Awagin Capital (investment partnerships) are integrated to provide a wide range of financial products and services to individuals, corporations, and public entities in the region. The Financial Instruments Intermediary Business through the alliance with Nomura Securities is also a key source of revenue.

Recent Overview

Driven by rising interest rates, increased lending, and enhanced securities investment operations, both ordinary profit and net profit reached record highs.

In FY2026 (ending March 2026), ordinary income in the Banking Business segment was ¥77,332 million (up ¥14,760 million year on year), and segment profit was ¥21,562 million (up ¥3,914 million year on year). Interest on loans increased significantly to ¥32,323 million (up ¥4,739 million year on year) due to rising market interest rates and appropriate risk-based pricing, while interest and dividends on securities rose substantially to ¥22,239 million (up ¥4,567 million year on year) due to increased equity dividends and investment trust distributions. On the other hand, interest on deposits also rose to ¥6,680 million (up ¥4,447 million year on year), reflecting higher funding costs. Losses on sales of bonds such as government bonds increased to ¥8,904 million (up ¥6,653 million year on year) due to the strategic replacement of low-yield bonds. Core net business profit (standalone) reached a record high of ¥23,489 million. The consolidated capital adequacy ratio remained at a high level of 10.48% (down 0.20 percentage points year on year) despite an increase in risk assets.

Key Products

Growth Drivers

• Increased interest income on loans due to rising loan yields (1.31% in FY2026 (ending March 2026), up 0.15 percentage points year on year), driven by the Bank of Japan's continued interest rate hikes, and expansion of the outstanding loan balance (standalone period-end balance of ¥2,524,766 million, up ¥67,946 million year on year)
• Increased interest and dividend income on securities due to rising securities yields (2.38% in FY2026 (ending March 2026), up 0.44 percentage points year on year) and higher dividends and distributions from equities and investment trusts
• Continued growth in the outstanding loan balance through proactive lending to SMEs based on business feasibility assessments (ratio of loans to SMEs and others at 78.31%) and broad regional expansion into the Kanto, Kansai, and Shikoku/Chugoku areas
• Growth in fee and commission income through expansion of the financial instruments intermediary balance (intermediary balance of ¥1,357,963 million) via the comprehensive business alliance with Nomura Securities, as well as increased corporate-related fees and core-business support fees
• Improved profitability of the securities portfolio through strategic replacement of low-yield yen-denominated bonds (FY2025 replacement results: sales of ¥92.9 billion at a yield of 0.45% → purchases of ¥96.6 billion at a yield of 1.66%)
• Improvement in net interest income through recognition of gains on partial cancellation of asset swaps (expected in FY2027 (ending March 2027)) and lower foreign currency funding costs

Risks

• Risk of rising funding costs due to a sharp increase in interest on yen-denominated deposits (¥6,680 million in FY2026 (ending March 2026), up ¥4,447 million year on year) amid rising domestic interest rates
• Risk of increased losses on sales of government bonds and other securities (¥8,904 million in FY2026 (ending March 2026)) due to the strategic sale of low-yield yen-denominated bonds, and the risk of expanding valuation losses on bonds in future rate-hike phases (unrealized losses on yen-denominated bonds of ¥62.6 billion, or ¥43.7 billion after considering asset swaps)
• Risk of volatility in financial markets (exchange rates, interest rates, and stock prices) stemming from geopolitical risks and changes in trade policy, including additional U.S. tariff measures, and the risk of deteriorating business performance among client companies
• Risk of long-term decline in lending demand due to shrinking of the regional economy within Tokushima Prefecture amid population decline and the aging/low birthrate society (loans within Tokushima Prefecture account for 51% of the total)
• Risk of increased credit costs (actual credit costs of ¥1,532 million, up ¥707 million year on year) and increased provisions for individual allowance for loan losses due to a rise in corporate bankruptcies
• Cybersecurity risk and system failure risk (stable operation of the core banking system is critical as social infrastructure)