TOKYO REPORT: Japanese Regional Banks See Opportunities in Ship Financing

Tokyo, Feb. 2 (Jiji Press)–Regional banks in Japan are increasingly pinning their hopes on ship financing, in which funds are provided for building new vessels and purchasing secondhand ships. Japan’s shipbuilding industry, which once played a central role in supporting regional economies and employment, was long undermined by intensifying competition from China and South Korea. Recently, however, the Japanese government has stepped up efforts to revitalize the sector, viewing shipbuilding as a key industry for strengthening national economic security. In parallel, Japan and the United States agreed to cooperate in the shipbuilding field during their tariff negotiations. Regional banks expect these developments to spur new demand for financing in the sector. Alternative-Fuel Vessels In ship financing, financial institutions typically provide loans to special-purpose companies established overseas by shipping businesses and trading houses for the purpose of obtaining ship registration. The parent companies secure financing and place vessel orders with shipyards. After acquiring the vessels, they enter into charter arrangements with shipping operators and use the charter fees as the source of loan repayments. Ships are long-term assets commonly financed by lenders, with useful lives often exceeding 20 years and requiring ongoing capital investment even after completion. “There are customers not only in Japan but also around the world. We need to manage foreign exchange and interest rate risks, but profitability is relatively high,” a financial industry source said. Amid intensifying competition in the lending market after a long period of zero or negative interest rates, ship financing may offer regional banks a valuable new source of revenue. In particular, demand for funding to build ships powered by alternative fuels with lower environmental impact, such as liquefied natural gas and ethanol, is expected to grow, driven by the introduction of stricter environmental regulations worldwide. Sumitomo Mitsui Trust Bank, a major provider of ship financing in Japan and overseas, established a dedicated Ship Finance Department in April by integrating its related planning and sales operations. The bank aims to expand its ship-related loan portfolio from the current level of about 1.6 trillion yen to around 2 trillion yen. Construction costs are higher for vessels that use next-generation fuels. “We are increasingly involved in bringing investors together, particularly regional banks,” Takahiro Hirano, head of the Ship Finance Department, said, signaling the bank’s intention to develop financing solutions tailored to the evolving needs of the shipping industry. Seto Inland Sea Areas Ehime Prefecture in western Japan, which faces the Seto Inland Sea, has long been a major hub for the shipbuilding industry. Reflecting this, Iyo Bank, a regional lender based in the prefectural capital of Matsuyama, held 1,521.2 billion yen in maritime industry-related loans at the end of March 2025, accounting for roughly 25 pct of its total outstanding loan balance. This was the result of supporting an important local industry, a bank official said, while suggesting that Iyo Bank now aims to further expand its ship financing business. “If more ships are built at Japanese shipyards (with government support), domestic shipowners will have more opportunities to consider increasing their fleets,” the official added. In neighboring Kagawa Prefecture, also on the Seto Inland Sea coast, Kagawa Bank established a dedicated ship finance division in June. The bank plans to strengthen its financial support framework in the belief that capital investment to enhance domestic shipbuilding capacity, promoted through joint public-private initiatives, will spur a rise in new projects. If domestic construction capacity is strengthened, “the number of projects will increase,” a bank official said. “Ships are mobile infrastructure,” said Shinichiro Sasaki, senior managing executive director at Anchor Ship Partners Co., a Tokyo-based company that operates investment funds for vessels. “If (shipbuilding and shipping) are recognized as industries vital to economic security, regional banks will see more business opportunities, particularly through syndicated loans.” As regional economies weaken, even regional banks located in landlocked areas are showing interest in ship financing, according to Sasaki. Anchor Ship Partners also supports human resource development at regional banks. Sasaki noted that because “the shipbuilding industry has a broad base” of related businesses, revitalizing the sector would provide a boost to Japan’s wider manufacturing industry. END [Copyright The Jiji Press, Ltd.]