Why Foreign Banks Can't Compete

 As I am sure most people know, banks accept deposits from customers, and then pay interest.  This costs the bank money.

Banks also typically lend money out for business loans, home loans ,and other types of loans on which they of course charge interest.  

Basically, the way banks have historically made profit is that they borrow money from depositors, lend that money out, charge interest, pay some percentage of that back to the depositors, and keep the rest for themselves.  

Here are some average numbers from the United States as of the end of 2022.

• Car Loan - 3.3% - 5.99%
• Savings Account - 3.3% - 4.35 %
• Standard Home Loan 5.5% - 6%
• Business Loans (bank) - 4.2% - 4.5%

As an example, an average consumer might put money into the bank, which pays them 3.3% interest.  The bank lends that money out as a home loan at 6%.  That gives them a 2.7% margin.    Since the banks have many millions of depositors, many thousands of home loans, and are operating billions of dollars, this more than covers their cost for renting expensive bank buildings and paying their employees, and leaves plenty of profit for returning to investors, expansion, etc.  

Sadly banks in the US have gotten into less honorable, but more profitable operations such as pay day loans, title loans, and credit cards - but we'll leave that discussion for another day.  

The point is: banks in the US, and in most countries, have a large customer base and a wide percentage point spread to work with.  

So how about Japan?

I'll use Mitsubishi UFJ Bank as an example: 

• Normal Deposit Account (Futsuu Yokin Kouza): 0.0010%
• Variable Rate Home Loans: 0.345% - 0.475%

Yes, you read that correctly: The interest rate they charge on home loans is less than half a percentage point in the most expensive case!  10 year fixed rate loans are closer to 1%, but that's still extremely cheap compared to most countries.  

These rates aren't special to Mutsubishi either.  As of this writing, Sony bank charges 0.397% (if you put a 10% deposit), and SBI Shinsei Bank charges 0.320%

What that means is that the bank has to lend out the money, collect the payments, pay their rent, employee payroll, IT fees, utility bills, taxes, pay for losses on bad loans, and then pay interest back to the depositors.  It's no wonder the rate on deposit accounts is essentially zero.  

If you are willing to lock your money away for a year or more, then you can get an increased rate of return, say.. 0.0020%!  

Having to live on a margin of less than 0.5% of interest requires massive scale and low costs.  A foreign bank operating in Japan is by its very nature likely going to have a small scale and higher costs.  

Because of this, the two main foreign banks operating in Japan both closed their retail branches in the past 10 years.  

HSBC closed all of their retail/consumer operations and fled a number of years back.  Their branches were simply closed as they said goodbye to their customers.  

Citibank also operated in Japan, essentially catering to rich foreignors, and also closed.  This was not just to profit crunch, Citibank Japan was punished by the Japanese government multiple times for dealing with the Yakuza.  

In the case of Citibank, though, SMBC Trust Bank took over the operations, absorbing citi Japan into  SMBC Trust Bank in 2015, and branding it "Prestia".

Because of this history Prestia is one of the only banks  where most everything is available in English, and one of the only banks to charge a monthly fee just for having an account (Depending on your balance).