The Profitability of Banks in Japan : The Road to Recovery?

This paper investigates the profitability of City, Trust, Regional, Second Association Regional, Shinkin and Credit Cooperative banks following the major financial crisis that affected Japan in the mid 1990s. We find evidence that well capitalised, efficient banks, with lower credit risks tend to outperform less capitalised, less efficient counterparts with higher credit risks. Second Association Regional banks and Shinkin banks (but not other ownership types) appear to benefit from diversification advantages which feed through to profitability. Furthermore, we find that industry concentration, GDP growth and stock market development play an important role in determining the profitability of Japanese banks