Kyoto Financial Group
Main Q&A from the FY2025 Interim Financial Results Briefing Session (Held December 2, 2025)
【Loans and bills interest rates】
Q. As market interest rates continue to rise going forward, will the spread applied when renewing fixed interest rates be acceptable to customers?
A. We do not necessarily intend to renew fixed-rate loans and bills at fixed interest rates. Other banks also appear to be taking the same fundamental approach, so we recognize that customers accept this approach. Incidentally, while fixed-rate loans and bills are common among large corporations, we strive to explain options including variable interest rates at renewal and reach a mutual agreement.
【ROE】
Q. Your ROE has been improving gradually. What level or target image are you aiming for toward the next Medium-Term Management Plan?
A. We set a target of 8% for the first half of 2030s, but more than a year has passed since this target was announced, and other major banks are now targeting 10 to 12%.
Given our current situation, it would be difficult to catch up immediately, but we recognize this as the industry benchmark when considering the next Medium-Term Management Plan (starting April 2026).
Q. There are discrepancies between ROE disclosed on a shareholders’ equity basis and on a net asset
basis. In managing ROE and financial leverage, do you prioritize a shareholders’ equity basis? How will you utilize unrealized gains on equity in management?
A. We used to disclose ROE on a shareholders’ equity basis in consideration of our unique characteristics. However, through dialogue with overseas investors and domestic asset management companies, we now recognize that net assets are the fundamental basis for ROE.
For this reason, we did not include figures based on shareholders’ equity in our previous briefing session materials. Recently, however, some investors suggested that, given unique characteristics of Kyoto FG, it would be better to also include figures based on shareholders’ equity. Therefore, we have once again
included them this time. We will strive to utilize both metrics to help a wider range of investors gain a deeper understanding of us.
Q. Although you are now a regional bank with a market capitalization of JPY 1 trillion, your net income and asset scale are smaller than the other three banks, and your ROE remains at a low level. I understand there are various factors involved, but can you realistically aim for double-digit ROE on an ongoing basis?
A. We are aware of the need to achieve double-digit ROE. As mentioned at the outset, we recognize that certain aspects of our operations have not yet caught up with leading banks, and there is still room for improvement.
【Securities portfolio】
Q. Domestic bond yields are at 0.4%, but 5-year bonds are just under 1.4%. Therefore, simply shifting approximately JPY 500 billion could theoretically increase carry income by roughly JPY 5 billion. Are you considering announcing such plans around the timing of the release of the next Medium-Term Management Plan?
A. It would be difficult to secure the funds for replacing domestic bonds from core business profits. Given the substantial unrealized gains on strategic equity holdings, and the fact that there is also a history of having invested in domestic bonds on that basis, it is conceivable that sale proceeds could be used.
We intend to address the replacement or sale of securities while considering both market timing and the timing of available funds.
【Capital allocation】
Q. Your capital adequacy ratio reached 11.96%, entering your target 11% range. As you consider the next Medium-Term Management Plan, is this a level at which the pace of credit risk asset growth or treasury stock repurchases would slow, or is there a possibility that the target range itself could be
slightly adjusted?
A. We decided three years ago that the appropriate level for the capital adequacy ratio was the 11% range,
but we should discuss this further. The 11% range is a level that would allow us to maintain a ratio above 10% even if a crisis on the scale of the 2008 financial crisis were to occur. When we transitioned to a
holding company structure, we applied for certification as a certified bank holding company, and having a capital adequacy ratio above 10% also facilitates regulatory approval when establishing a new company.
However, we are currently discussing both the need to maintain certified bank holding company status going forward as well as the appropriate target level.
【Deposit and loan-oriented business】
Q. Deposits as well as loans and bills are growing steadily, but a situation may arise in the future where deposits fall short of demand for loans and bills. You collect deposits locally in Kyoto, but less than half are used for loans and bills within Kyoto. As demand for loans and bills grows and deposits become insufficient, can you continue a business model that expands outside the region (outside Kyoto Prefecture)? Or will your business model shift to using deposits within Kyoto to stimulate the regional economy?
A. As the population declines over the long term, though it is unclear how far into the future, we believe a business model relying solely on funds from deposits and loans will become unsustainable. The Kansai region, which we consider our home base, is still maintaining a certain population level, but it is nevertheless declining. We became a holding company to create a model for earning in areas beyond
deposits and loans. Kyoto FG considers the Kinki region (Kyoto, Osaka, Shiga, Nara, Hyogo) as our base, and we fundamentally believe funds deposited locally should be used locally. However, we also have bases in Aichi and Tokyo, so we will use funds in a balanced manner.
【Impact of rising market interest rates】
Q. Both short-term and long-term interest rates are rising. Is it correct that the more short-term
interest rates rise, the better? And given that a large portion of long-term interest rates are fixed, is it also correct that the more long-term interest rates rise, the better?
A. Banks operate under a business model in which a wider spread between short- and long-term interest rates is more profitable, but the current portfolio is not entirely positive. In a rising interest rate environment, it is generally the case for banks that deposit interest rates increase first. Although higher interest rates are beneficial in the long term, they may appear negative in quarterly or semi-annual financial results.
Looking at the financial results of regional banks over the long term may reveal their true nature more clearly.
【Other】
Q. It has been two years since you became a holding company. Could you share your achievements and challenges so far?
A. There has been significant revitalization of the company and our people. Previously, with negative interest rates persisting, the financial industry felt stagnant, leaving us with no choice but to reduce people and branches. While our pace of branch closures was more gradual than other banks, we still faced a
noticeable impact. Since becoming President in 2015, we have broken through this stagnation by
establishing Kyogin Securities, having the Bank of Kyoto enter the trust services business, and advancing into various new businesses.
Our transition to a holding company structure has revitalized existing Group companies and enabled the establishment of new ones. This allows young people to not only pursue branch manager roles but also develop specialized expertise, fostering their career aspirations. The most significant achievement is the sense of revitalization that “Kyoto FG is evolving into something new.”
Furthermore, from the customer’s perspective, starting with consulting discussions and then being offered Kyoto FG’s solutions has heightened expectations for us, which in turn boosts employee motivation.
AloJapan.com