Fitch Ratings: Profit growth of Japan's five major securities firms may slow, but outlook remains "neutral"

(1) Fitch Ratings expects that after a robust fiscal year ending March 2026, the profitability of Japan’s five major securities firms will moderate, as earnings return to normal levels from recent highs. However, Fitch maintains a “neutral” outlook on the sector, primarily due to strong trading volumes, elevated market volatility, and the continued normalization of yen interest rates. (2) In fiscal year 2026, the five companies' average net operating revenue grew by 10%, with most operating profits increasing by over 20% and return on equity improving. Nonetheless, as external uncertainties rise and macroeconomic headwinds intensify, investor sentiment is cooling, and earnings growth may slow further. (3) Facing a more uncertain operating environment, each company is continuing to focus on asset and wealth management and a client-centric model to enhance income stability and strengthen risk controls. (4) Fitch expects Nomura Holdings and Daiwa Securities Group to maintain sound capital positions. Daiwa’s announced acquisition of ORIX Bank may reduce its common equity Tier 1 ratio by about 5 percentage points, but management plans to keep it above 12%. Fitch anticipates the industry’s leverage ratio will remain in line with current levels, with liquidity retaining a relative advantage. (5) All rated securities firms have a stable outlook on their long-term issuer default ratings, mainly based on Fitch’s expectation that the government or their ultimate parent will continue to provide extraordinary support. Although profitability remains the main weakness in the stand-alone credit profiles of Nomura and Daiwa, their IDRs face limited downward pressure unless government support ratings are downgraded.