Yahoo Finance Rakuten Bank CEO Sees BOJ Rate Hike by October Lifting Profit
(Bloomberg) -- Rakuten Bank Ltd. expects the Bank of Japan to hike rates again later this year after scrapping its negative interest rate policy in March, in a move that will likely boost profits for the Japanese online financial firm.
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Given the yen’s fall against the dollar, the BOJ is likely to take action in October at the latest, Chief Executive Officer Hiroyuki Nagai said in a Bloomberg Television interview with Shery Ahn.
“Now that the Bank of Japan has scrapped its negative interest rate policy, earnings and profits for financial institutions will increase significantly as interest rates rise,” Nagai said. “We’ve already begun to benefit, and we believe we will receive even more benefits than we do now if the BOJ continues to raise rates.”
That may boost parent Rakuten Group Inc., which is increasingly relying on revenue from its banking unit to offset losses from a foray into mobile phones. The tech conglomerate has reported losses for five consecutive years as it struggles to turn the business around. Meanwhile, the banking unit’s share price has doubled from its initial public offering in April 2023.
Read More: Rakuten Considers Combining Financial Units; Shares Jump
While Nagai does not expect big rate hikes due to Japan’s current economic conditions, there could be a negative impact if the BOJ raises rates beyond 25 basis points, such as a rise in defaults as some individuals and businesses will not be able to repay their debt, he said.
Still, even if it happens, the CEO said he is confident that the bank can keep default rates under control since its credit screening uses AI, in addition to traditional methods.
Fintech Reorganization
Rakuten Group holds about 49% in Rakuten Bank, one of the core financial units of the online retailer. The conglomerate, which also owns a brokerage, insurer and card company, is currently in talks with Rakuten Bank about a reorganization of its fintech subsidiaries, which gives the group an opportunity to generate more cash. They are aiming to close the deal in October.
Read More: Rakuten’s Costly Junk Bonds Signal Challenge Ahead for Mikitani
Still, such a deal would have to make sense for minority shareholders of Rakuten Bank too, Nagai said.
“We will aim to reach the agreement on reorganization if the interests of minority shareholders can be protected, if not, we may reconsider,” he said.
--With assistance from Adrian Wong.
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