Yamaguchi Financial Group, Inc.

Business Details

The three banks—Yamaguchi Bank, Momiji Bank, and Kitakyushu Bank—operate banking business including deposits, lending, domestic and foreign exchange, and securities investment, with Yamaguchi Prefecture, Hiroshima Prefecture, and the Kitakyushu area as their main business base. The group is managed as a single banking business segment, which also encompasses peripheral businesses such as securities and consulting. In FY2026 (ending March 2026), ordinary income increased 22.7% year on year to ¥261,941 million, while ordinary profit decreased 14.1% year on year to due to a sharp rise in funding costs and losses on sales of Japanese government bonds and other bonds.

Recent Overview

Ordinary income increased substantially, but ordinary profit fell 14.1% year on year due to a sharp rise in losses on bond sales; a large increase in profit is forecast for next fiscal year

In FY2026 (ending March 2026), interest on loans (¥123,058 million, up ¥9,658 million year on year), interest and dividends on securities (¥38,567 million, up ¥7,453 million year on year), and gains on sales of equities and other securities (¥31,804 million, up ¥19,959 million year on year) increased, expanding ordinary income to ¥261,941 million (up 22.7%). Meanwhile, a sharp increase in funding costs (¥44,366 million, up ¥9,235 million year on year), including a surge in interest on deposits (¥26,971 million, up ¥15,406 million year on year), and losses on sales of Japanese government bonds and other bonds (¥64,767 million, up ¥42,947 million year on year) pushed down ordinary profit to ¥45,026 million (down 14.1% year on year). Comprehensive income improved substantially to ¥74,484 million (from -¥12,351 million in the previous fiscal year). The company advanced selection and concentration of its business portfolio, including the transfer of Hoken Hiroba in September 2025 and the resolution to transition Yamaguchi Bank from the international standard to the domestic standard. For FY2027 (ending March 2027), a large increase in profit is forecast, with ordinary profit of ¥67,500 million (up 49.9% year on year) and net profit of ¥45,000 million (up 36.3% year on year).

Key Products

Growth Drivers

• Rise in loan yields (combined 3-bank loan yield of 1.40%, up 0.09 percentage points year on year) and a sharp increase in interest on deposits placed (consolidated ¥9,500 million, up ¥5,307 million year on year), against the backdrop of policy rate hikes accompanying the Bank of Japan's monetary policy normalization
• Expansion of loan balance (combined 3-bank total loan balance of ¥9,007.0 billion, up ¥367.9 billion from the previous fiscal year-end). Kitakyushu Bank continued to achieve high growth, up ¥89.2 billion from the previous fiscal year-end
• Substantial increase in gains on sales of equities and other securities (combined 3 banks ¥31,804 million, up ¥19,959 million year on year), improving extraordinary gains/losses
• Improvement in core earnings capacity, as shown by the increase in consolidated core net business profit (excluding gains/losses on cancellation of investment trusts and interest rate swaps) (¥56,779 million, up ¥6,116 million year on year)
• Substantial improvement in valuation gains/losses on other securities (consolidated basis, from -¥53,922 million in the previous fiscal year to -¥92 million in the current fiscal year), improving net assets and capital adequacy ratio (consolidated capital adequacy ratio from 4.8% to 5.1%)
• Progress in cost efficiency improvement, as shown by the improvement in OHR (from 56.18% to 54.35%)
• Expansion of personal assets under custody (combined 3 banks ¥590.7 billion, up ¥67.8 billion from the previous fiscal year-end), driven by investment trusts and insurance
• Establishment of YMFG Growth Partners (YMGP), building a shared-fate business model and diversifying non-interest income
• Effective utilization of capital and maximization of group synergies through Yamaguchi Bank's transition from the international standard to the domestic standard
• A substantial increase in profit is forecast for FY2027 (ending March 2027), with ordinary profit of ¥67,500 million (up 49.9% year on year), mainly driven by expansion of net interest income amid the rising interest rate environment

Risks

• Sharp increase in funding costs (consolidated ¥44,366 million, up ¥9,235 million year on year). Of this, interest on deposits was ¥26,971 million (up ¥15,406 million year on year), and rising funding costs amid the rate hike phase are squeezing profitability
• Substantial expansion of losses on sales of Japanese government bonds and other bonds (combined 3 banks ¥64,767 million, up ¥42,947 million year on year), pushing down gross operating profit. Consolidated gross operating profit declined substantially to ¥83,194 million (down ¥21,961 million year on year)
• Interest rate risk in the securities portfolio. Valuation losses on held-to-maturity bonds were -¥35,951 million on a consolidated basis (worsening by ¥16,613 million year on year). Valuation losses on bonds also totaled -¥97,874 million on a consolidated basis
• Deterioration in Momiji Bank's earnings. Ordinary profit declined substantially to ¥5,989 million (down ¥5,087 million year on year), and net profit fell to ¥4,206 million (down ¥3,130 million year on year). ROE (net assets basis) was 2.80% (down 2.07 percentage points year on year)
• Increase in Kitakyushu Bank's credit-related costs (¥1,720 million, up ¥1,219 million year on year) and decline in ordinary profit (¥6,520 million, down ¥1,398 million year on year). OHR also worsened to 60.80% (up 4.62 percentage points year on year)
• Decrease in fee and commission profit (consolidated ¥17,059 million, down ¥1,598 million year on year). Strengthening the earnings capacity of the fee business remains a challenge
• Impact on the local economy (manufacturing and export-related industries) from geopolitical risks such as US tariff hikes and heightened tensions in the Middle East
• Medium- to long-term structural risk of shrinking loan demand due to population decline, low birthrate and aging, and business succession issues in the local economy
• System risk and migration costs associated with the integration of the core banking systems of the group banks
• Approval acquisition risk associated with Yamaguchi Bank's transition from the international standard to the domestic standard, and changes to the management control structure after the transition

Business Details

Yamaguchi Financial Group's "Other" segment comprises non-bank subsidiaries including YM Securities (securities business), credit card business, YM Lease (leasing business), and consulting business. As the banking business is treated as a single segment, there is no independent financial disclosure, but this segment plays a role in complementing the group's ability to provide comprehensive financial services. In September 2025, all shares of Hoken Hiroba Co., Ltd. were transferred and the company was excluded from consolidation. In July 2025, four consulting-related companies were reorganized to establish "YMFG Growth Partners (YMGP)."

Recent Overview

Major reorganization of the business portfolio, including the transfer of Hoken Hiroba and the establishment of YMGP through the reorganization of four companies

In September 2025, all shares of Hoken Hiroba Co., Ltd. were transferred to Hoken no Madoguchi Group (recording a gain on sale of subsidiary shares of ¥2,690 million), and the company was excluded from consolidation. In July of the same year, four consulting-related companies were integrated to establish YMFG Growth Partners, building a one-stop support structure for resolving management challenges. Personal assets under custody expanded substantially, driven by rising interest rates and growing asset management needs, with the combined 3-bank balance increasing ¥67.8 billion year on year to ¥590.7 billion, and YM Securities' balance also increasing ¥70.4 billion year on year to ¥380.6 billion. Meanwhile, consolidated fee and commission income decreased ¥1,131 million year on year to ¥27,607 million.

Key Products

Growth Drivers

• Increase in sales of investment trusts and insurance driven by expanding asset management needs amid the rising interest rate environment
• Expansion of YM Securities' assets under custody (up ¥70.4 billion year on year, ¥380.6 billion as of end of March 2026)
• Expansion of combined 3-bank personal assets under custody (up ¥67.8 billion year on year, ¥590.7 billion as of end of March 2026)
• Strengthening of the one-stop support structure for resolving management challenges through the establishment of YMFG Growth Partners (YMGP)
• Expansion of combined support involving lending, equity, and solutions toward establishing a shared-fate business model
• Expansion of regional leasing and consulting businesses triggered by the selection as a decarbonization pioneer area and GX-related initiatives
• Creation of new revenue opportunities through resolving regional challenges, such as the inbound affluent market expansion project

Risks

• Disclosed as part of the single banking business segment, resulting in low transparency regarding the individual performance of non-bank businesses
• Loss of insurance sales revenue contribution due to the deconsolidation of Hoken Hiroba Co., Ltd. (September 2025)
• Securities and investment trust sales performance is highly susceptible to market conditions (stock prices and interest rates)
• Consolidated fee and commission income has decreased year on year, with fee income from non-bank businesses stagnating
• The synergy effects of YMFG Growth Partners' integration may take time to materialize
• Medium- to long-term risk of a shrinking customer base due to regional population decline and low birthrate and aging
• Non-bank businesses such as consulting and leasing are small in scale and deemed immaterial, resulting in the omission of segment disclosure