Japanese banks are London's largest foreign bank group, as measured by the size of balance sheet assets. This article examines their role and activities in both international and UK markets. It analyses the banking statistics reported to the Bank of England by Japanese banks, but also reflects views and opinions expressed by a wide range of Japanese bankers in discussions with the authors. Although briefly touching on the historical development of the Japanese presence in London, the article concentrates on the evolution of business since the end of 1983. Among the principal findings are:
- The surge in Japanese banks' growth worldwide reflects the strength of Japan's external position and the gradual opening up of its financial markets.
- Japan's capital outflow since 1984 has exceeded its current account surplus and Japanese banks in London are major intermediaries in financing these outflows. Japanese banks account for over 35% of London's international banking business.
- Japanese banks' share of lending to UK non-bank residents is small (8%), but high in certain sectors. Lending to corporations in the United Kingdom is seen as an important area for growth but a difficult one for them to break into.
- Japanese bankers' expectation of an international agreement on capital adequacy is contributing to a shift in emphasis away from volume of business towards return on assets.
- The banks' commitment to London has been strengthened by the establishment of merchant bank subsidiaries.