Nomura’s market risk jumps ¥800bn in Q2

Yen depreciation and rising default risk drive RWAs to record high

Nomura’s market risk-weighted assets (RWAs) surged by 12.8% in the three months to end-June, driven by yen depreciation and heightened default risk in its acquisition and leveraged finance unit, and securitised products.

Market RWAs reached ¥7.2 trillion ($47.8 billion) on June 30, up from ¥6.4 trillion three months earlier. This surpassed the previous record of ¥7.1 trillion set by the lender in December 2022, marking the highest level since at least 2017.

 

The increase in market risk contributed to pushing the bank’s total RWAs up by 6.7% to ¥20.2 trillion, the highest level in at least six years and the largest quarter-on-quarter rise since December 2019.

Despite a 2.2% increase in Nomura’s Common Equity Tier 1 capital to ¥3.2 trillion, the bank’s CET1 capital ratio fell by 60 basis points to 15.6%, a post-pandemic low.

What is it?

Risk-weighted assets determine the minimum amount of risk-based capital a bank must hold to meet regulatory requirements. Market RWAs can be calculated via the internal models approach, which uses proprietary parameters and formulas, or the regulator-set standardised approach. Nomura adopts a mix of the two.

Why it matters

A spokesperson for Nomura told Risk Quantum that approximately half of the spike in market risk was due to the depreciating yen, which fell from ¥151.39 to ¥160.91 against the dollar during the period.

The remaining increase was attributed to rising default risk in the bank’s acquisition and leveraged finance unit and its securitised products, which include mortgage-backed securities.

Nomura’s record-setting market RWAs contrast with the stark reductions seen by other Japanese banks in the previous quarter, following their implementation of the Fundamental Review of the Trading Book on March 31. Nomura is not required to switch to the FRTB until March 2025.

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