As a subsidiary of the Taiwanese Mega Bank, CTBC Bank, Tokyo Star Bank is able to meet the diverse needs of customers on a global scale.
In February 2024, the Nikkei 225 roared past the JPY 40,000 mark, and this has been a record-breaking year for Japan, financially speaking. We also saw increased IPO activity, with 97 companies going public, raising over JPY 570 billion. There has also been a surge in private equity deal-making, with the average number of deals tripling from 2018 to 2022. This has all drawn unprecedented levels of foreign capital into Japan’s financial markets, with foreign investments at a ten-year high. What do you believe are the core reasons for this extraordinary performance in Japan’s investment markets?
The reasons Japanese stock prices soared are the depreciation of the JPY and low interest rates. In 2011, before Abenomics was first introduced, USD 1 was JPY 75, but in 2024, it is JPY 160 to USD 1. It means that the price of the JPY has halved. With stock depreciation, compared to Western nations, Japanese stocks, and real estate are considered undervalued, which is pouring money into the Japanese market. The Tokyo Stock Exchange has requested businesses to take actions to achieve management that is aware of capital costs and stock prices, resulting in an increase in companies where the price-to-book value ratio (PBR) has improved through actions such as share buybacks. Japan has long experienced deflation, but with Abenomics, there was a push for more active purchases of stocks. Moreover, exchange rate fluctuations have been advantageous to those companies operating outside of Japan.
In the upcoming years, with the implementation of reforms both internally and externally, I have high expectations that Japanese companies will grow. The slow, gradual raising of the interest rate is positive for us. Currently, in Japan, long-term interest rates are low while short-term rates are relatively higher, which is beneficial for businesses if this trend continues.
I think your answer illustrates the current debate between global investors and the media very well. On the one hand, you have the pessimist camp, which argues that Japan’s recent performance is mainly based on macroeconomic conditions, including the weakening of the yen, the low-interest rate environment, or the struggle happening in China’s investment market, which has brought capital to Japan. On the other hand, there are optimists who believe that Japan is on the cusp of a historic transformation from corporate governance reforms and initiatives such as NISA. The million-dollar question is, should macroeconomic economic conditions normalize, do you believe that those internal changes will be enough to push the bullish momentum forward?
Everything takes time, but the mindset of the Japanese people has begun to change drastically, and with internal reforms, we are seeing positive effects gradually emerge. One example is the shift in company focus on engagement with investors, who now voice their opinions more. The idea that companies only need to pay dividends is now obsolete, and we are witnessing an environment where investors engage actively in the operations of the companies they have invested in, shifting the mindset to how management can sustainably maintain their companies. Although it may take time, we will surely see results.
Another change in mentality is the new NISA account. The government wants people to change their mindset from savings accounts to investments, particularly in this inflationary environment. What effects have you felt from the introduction of the NISA at your company?
The number of NISA accounts opened at our bank has increased, but traditionally, Japanese senior citizens who possess wealth are very reluctant and conservative when it comes to investing. They have experienced multiple economic crises and market crashes. Speaking of Japan’s financial history, Abenomics introduced negative interest rates. This changed the business model of banks from one focused on earning interest rate income from mortgages and loans to one where they can also earn fee income. As a result, for example, in the retail sector, banks have started focusing on selling investment products. This has led to increased interest from retail investors, but it remains largely concentrated among the senior generation. NISA is geared towards younger generations who are becoming more interested in investments and opportunities to access the market. The effects won’t be apparent for at least a couple of years, but we will see the impact of expanded individual investors in the next 5-10 years.
Main HQ building
Two key dates are June 11, 2001, when your company was founded to take over the business operations of then-bankrupt Tokyo Sowa Bank, and in 2014, when the bank was purchased by Taiwan's CTBC Bank, marking the first time a foreign lender took complete ownership of a Japanese bank. Can you briefly explain the evolution and history of your company? What advantages and synergies are you able to leverage due to CTBC Bank’s network?
Tokyo Sowa Bank served as a regional financial institution centered in Tokyo and the nearby area, but it went bankrupt in 1999 due to the economic crisis in Japan. While Tokyo Star Bank was founded in 2001 to take over the operations of Tokyo Sowa Bank, the main shareholder at the time was a US private equity firm called Lone Star Funds.
The reorganization led by the US fund allowed us to introduce many unique new instruments and products. For example, as pioneers in the industry, we have introduced reverse mortgages, as well as deposit offset mortgages with no interest applied up to amounts equivalent to borrower savings account balances. It certainly feels like the DNA of the company has become one to introduce new ideas and products.
I think a core strong point of our bank is the fact that we have been active in providing new and unique types of services in Tokyo and the rest of Japan. Tokyo is the most competitive city in Japan, especially in terms of the finance industry. If you include the Tokyo branches of regional banks, there are over a hundred institutions concentrated in Tokyo. This is why providing unique products and services is so critical for our existence. In addition, Tokyo Star Bank was acquired by CTBC Bank in 2014, and we are now commemorating the 10th anniversary of that acquisition.
CTBC Bank is the core company of CTBC Financial Holding, a leading financial group in Taiwan. CTBC Bank was originally a mid-scale bank, but they have been very proactive in supporting Taiwanese companies to go overseas, resulting in immense growth for the company. While many financial institutions focused domestically, CTBC Bank has always expanded its business as an international bank.
They have group operations in Taiwan, various Asian countries, Japan, the US, and other regions. Tokyo Star Bank holds an important position among its overseas locations. Since the spread in Japan is low, the interest is low. For example, compared to Thailand or Indonesia, the profitability may not be remarkable, but stability-wise, Japan is an attractive market, and CTBC Bank has high expectations. I was assigned the presidency two and half years ago, and this period was when the COVID-19 pandemic was beginning to subside. With the recent depreciation of the Japanese yen and other factors, there is a growing number of people who hope to invest in Japan. Our bank has thus focused on introducing products that meet the needs of foreigners.
After the lifting of COVID-19 restrictions in 2023, there was a surge in the number of tourists coming to Japan and a growing number of others interested in making investments in Japan. While paying sufficient attention to countering money laundering and combating the financing of terrorism, we also have started opening non-Japanese resident bank accounts for residents in Taiwan who wish to make investments in Japan.
We are the only Japanese financial institution that allows non-residents who want to make investments in Japan, such as real estate, to open deposit accounts through email or postal mail without having to come to Japan in person. We have started this service with Taiwanese customers. We also have about 80 fluent Chinese speakers, and this allows us to deploy appropriate screening and comprehensive services.
On top of your bank accounts for foreigners, you also offer Tokyo Lucky Star, a real estate loan that is targeted at Taiwanese citizens without Japanese residency. How has this been received by your Taiwanese clients? Looking at the future, are you looking to expand these types of mechanisms for foreign investors?
Our Tokyo Lucky Star products target Taiwanese residents who are looking to obtain loans to purchase Japanese real estate. This service was introduced ten years ago, but we were unable to sell them during the years of the COVID pandemic proactively. Recently, the situation has changed significantly in Tokyo, where there is higher liquidity with less risk. Taiwanese residents have been growing interested in the Japanese real estate market. With the huge growth, we expect the number of applications in 2024 to reach about twice the number of last year's. Moreover, in 2025, we plan on making Tokyo Lucky Star products available to residents of Hong Kong as well.
We provide our services not only to Taiwanese people but also to Hong Kong companies and US citizens. With Hong Kong's high net worth individuals, we ask them to establish an investment company in Japan, and we support them in the establishment of this company. We also support the loans as part of our one-stop service. In 2023, we began partnering with Central Pacific Bank in Hawaii, where many second- and third-generation Japanese people have their own bank accounts. Those people and those who have succeeded in Silicon Valley and now live in Hawaii are interested in purchasing Japanese real estate, and we provide them with services. We are also considering partnerships with banks in other countries so that we can provide similar services.
Why is no one else offering the services you provide?
There are two major reasons why other banks are not providing full service to foreigners as we do. Firstly, it is rather burdensome for foreigners to open a bank account in Japan, and the Ministry of Finance has strict regulations on the flow of money, particularly funds sent overseas. The second is the language barrier. We can provide comprehensive language support and English and Chinese language documents for all interested parties.
Your first office was launched in Kumamoto in 2023, and the aim of this was to target the growing demand for financial services driven by the arrival of TSMC in the region. What specific services are you looking to offer customers in Kumamoto, and what opportunities have you identified since the arrival of TSMC?
With TSMC’s entry into Kumamoto, we will be able to create new opportunities. Using our newly established Kumamoto Office as a base, we are expanding our financial services for related companies entering the markets of Kumamoto and surrounding areas along with TSMC, as well as for employees seconded from Taiwan to Japan. For corporate customers, we have already opened bank accounts for over 30 semiconductor-related companies and are addressing their various financial needs, such as providing loans in some cases. We also provide seconded employees with financial services mainly focused on deposit transactions.
Are there any new investment services or products that you can tell us about today?
We have many ideas, but nothing we can release just yet. I predict that in about ten years' time, there will be no need for physical retail branches of banks, and for our company, three years ago we had 36 branches, but now we have reduced that to 14, all of which are cashless besides our head office. We have signed up with Seven Bank for ATM operations.
Overall, we can achieve a low-cost operation, but we are trying to leverage the 14 existing branches we have, and those locations are extremely important to us, particularly when it comes to providing customer service to our clients.
Imagine that we come back in five years and have this interview all over again. What goals or dreams do you hope to achieve by the time we come back for that new interview?
Financially speaking, a ROE of 6% is the target we have as a consolidated subsidiary of CTBC Bank. Personally, I envision increasing the profitability rather than simply increasing the size of the company, and I’m very confident this can be achieved through improved business efficiency in our bank’s operations. This will come about through proper screening of tasks and the removal of excess work and risks. Overall, this will elevate revenue at Tokyo Star Bank, incentivizing all.
For more information, visit their website at: https://www.tokyostarbank.co.jp/
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