Japan's Norinchukin Bank said Wednesday it is considering a capital increase worth 1.2 trillion yen ($7.7 billion) as it seeks to bolster its financial health amid massive unrealized losses from its overseas bonds holdings.
Norinchukin, which was set up by cooperatives for farmers and fishers and is one of the largest banks in Japan, is in talks with its stakeholders over the possible measure as it expects a net loss of about 500 billion yen for the year ending March next year.
The projected loss will be its largest since fiscal 2008 when it posted a net loss of 572.1 billion yen in the wake of the global financial crisis, which was sparked by the failure of U.S. securities firm Lehman Brothers Holdings Inc.
For the year ended March this year, Norinchukin posted a net profit of 63.62 billion yen.
"We hope to restructure our investment portfolio so that we can have a stable financial base," Kazuto Oku, the bank's head, said at a press conference in Tokyo.
Norinchukin has a relatively higher ratio of foreign bonds in its investment portfolio than other banks in Japan, accounting for 42 percent of the total as of March, with a large part made up of U.S. Treasuries, with stocks accounting for only 2 percent.
The losses came as the prices of its overseas bonds fell due to foreign central banks, including the U.S. Federal Reserve, aggressively hiking their interest rates to contain inflation. Bond prices move inversely to interest rates.
Before the recent onset of global inflation brought about by the war in Ukraine and the coronavirus pandemic, the bank focused on investing in foreign sovereign bonds such as U.S. Treasuries, which have higher yields than Japanese government bonds.
"The pace of interest hikes was a lot faster than we had expected," Oku said.
Unrealized losses in its securities portfolio ballooned to 1.77 trillion yen for the year ended March from 946.2 billion yen the previous year, according to Norinchukin.
The bank said it will sell foreign bonds with unrealized losses and replace them with more profitable assets, with stocks and Japanese government bonds considered among other options.
