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

32 Pages Posted: 16 Nov 2009

See all articles by Hong Liu

Hong Liu

University of Aberdeen

John O. S. Wilson

University of St. Andrews

Date Written: November 10, 2009


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.

Keywords: Banking, competition, dynamic panel estimation, Japan, profitability

JEL Classification: G21 L11

Suggested Citation

Liu, Hong and Wilson, John O. S., The Profitability of Banks in Japan: The Road to Recovery? (November 10, 2009). Available at SSRN: or

Hong Liu

University of Aberdeen ( email )

Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

John O. S. Wilson (Contact Author)

University of St. Andrews ( email )

North St
Saint Andrews, Fife KY16 9AJ
United Kingdom

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