Japan’s regional banks got more of the upside from a higher-rate environment in the year to March 2026, but they did not get a clean escape from the securities losses built up in earlier years. Aggregate net profit rose 38%, with the Financial Services Agency saying higher net interest income and bigger gains on stock sales more than offset increased losses on sales of government and other bonds, plus higher expenses.
| Metric | Year to March 2025 | Year to March 2026 |
|---|---|---|
| Net profit | 13,088 (¥100mn) | 18,043 (¥100mn) |
| Net interest income | 42,367 (¥100mn) | 49,747 (¥100mn) |
| Bond-related gains/losses | ▲4,750 (¥100mn) | ▲11,557 (¥100mn) |
| Core operating profit | 19,582 (¥100mn) | 26,368 (¥100mn) |
| Loans outstanding | 333.2 trillion yen | 349.1 trillion yen |
| Bad loans | 5.5 trillion yen | 5.4 trillion yen |
| Bad-loan ratio | 1.64% | 1.54% |
| International total capital ratio | 13.45% | 13.90% |
| Domestic capital ratio | 10.23% | 10.16% |
Core banking is doing more of the work
The clearest improvement was in spread income. Net interest income rose to 49,747 in the report’s ¥100mn units, from 42,367 a year earlier. Core operating profit climbed to 26,368 from 19,582. Loan balances also kept expanding, ending March at 349.1 trillion yen versus 333.2 trillion yen a year earlier. For regional lenders, that combination matters more than the headline flourish: the basic banking business is finally contributing more of the result.
The securities book is still the awkward bit
The catch is that the market side of the balance sheet remained painful. Bond-related gains and losses worsened to ▲11,557 from ▲4,750, and other operating profit fell further into the red at ▲11,328. Expenses also increased to ▲30,886 from ▲29,292. That helps explain why net operating profit before credit costs was almost unchanged, at 14,812 versus 14,833, even though core operating profit improved sharply. Higher rates are helping, but the bond book is not letting the story become too tidy.
Credit looks better, capital is mixed
The FSA’s headline asset-quality measures improved. Bad loans fell to 5.4 trillion yen from 5.5 trillion yen, and the bad-loan ratio eased to 1.54% from 1.64%. That is encouraging, but it remains aggregate data rather than a guarantee that credit risk has vanished.
Capital ratios also split along regulatory lines. For internationally active regional banks, total capital ratio rose to 13.90% from 13.45%, Tier 1 to 13.60% from 13.20%, and common equity Tier 1 to 13.54% from 13.16%. For domestic-standard banks, though, the capital ratio slipped to 10.16% from 10.23%.
One footnote matters. The FSA says the figures are rounded, and the aggregation covered 97 banks in the latest year, down from 98 a year earlier and 100 two years earlier. So the direction is clear enough: regional lenders are getting a rate tailwind through earnings and loan growth. The exact year-on-year comparisons deserve that small but important asterisk.