Regional banks in Japan are increasingly lending to foreign companies through ‘samurai’ and ‘ninja’ loans, reports Stanley White for Reuters. Samurai loans are yen loans issued in Japan by foreign companies, and ninja loans are debts issued by foreign companies in Japan.
White states that the reason for the increase is due to regional Japanese banks struggling with interest rates at zero and a desire to diversify their customer base. Kazuyuki Ikegami, senior counsellor in the Tokyo branch of Bank of Kyoto, explains: “Regional banks have less opportunity to lend because the number of local companies is falling, and we have low margins because interest rates are so low. We need the opportunities to lend that samurai loans provide us, and they’re great because they mitigate currency risk.”
White quotes data from financial markets data provider Refinitiv, which finds that samurai loans doubled to US$21.5bn in 2018 and are still rising in 2019, while the number of ninja loans increased by 50% in H1 2019 – the fastest pace since H1 2015. He also cites data showing that the majority of borrowers come from the US, India, Hong Kong and Canada, and foreign companies are choosing to raise low-cost, long-term loans because of cheaper cross-currency interest rate swaps.
“Japanese banks can earn more in the samurai and ninja market for any given creditor profile than they can when they lend to domestic companies,” White writes. He gives an example of Canada’s Enbridge, a pipeline operator, which, according to Refinitiv, issued a three-year samurai loan paying 65 basis points over the yen London Interbank Offered Rate (LIBOR). He explains that this figure rarely exceeds 50 basis points above LIBOR.
Reuters article
Malaysia’s desire for samurai bonds
The appeal of the samurai has spread to Malaysia, which is set to issue a second samurai bond, according to P Prem Kumar for Nikkei Asian Review.
Malaysia’s prime minister Mahathir Mohamad says Japan has agreed to the second issuance at a lower interest rate than the first bond. The ¥200bn bond was issued in March 2019 with an interest rate of 0.65%. The bond was issued using funds from the Japan Bank for International Cooperation and at the time, it was the largest such sovereign bond issuance in the market.
According to Kumar, Mahathir told reporters, “We are studying how we can use this cheap money to overcome our financial problems.” The funds will be used to repay debt and build infrastructure.
Mahathir has previously explained his preference for samurai bonds, Kumar writes, in that they allow Malaysia to capitalise on the exchange rate variance between the Japanese currency and the dollar.
Nikkei Asian Review article
Sri Lanka’s moving towards samurais
Sri Lanka is hoping to raise money through issuing Japanese samurai bonds too, according to News First. With a view to raising US$500m, the Central Bank is inviting proposals from banks and investment houses to be considered as ‘joint lead arrangers’ – an entity that is awarded the lead arranger mandate by the borrower together with one or more other lead arrangers – for the bond. The launch of Sri Lanka’s first yen-denominated samurai bond has been approved by a cabinet of ministers, who will appoint the lead arrangers.
According to the Central Bank, Japan Bank for International Cooperation is offering a 95% credit guarantee for this bond.
News First article
Are samurai loans and bonds a good way for a country to alleviate debt? Leave your comments below.
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