After more than a decade in trouble, Japanese banks have done well this year. One major reason for this good show is that these banks have shed their traditional look and embraced new business models not only to adjust to the new realties but also to compete effectively.Japanese banks are back in the reckoning. Boosted by good performance and strong profits, the stocks of these banks have reached new highs. Investors view it as a sector of promise; more significantly, the Foreign Institutional Investors (FIIs) have once again started to put their money on these stocks. Japanese banks have also made use of the positive stock market sentiments by raising capital. This was essential for them to increase their crucial capital base.

Apart from showing good profits the banks are also reviewing their non-performing loans. The average non-performing loans, which were at an all-time high of 8.4% in 2002, declined to around 5.5% in September 2004. The goal is to get the level down to 4% by March 2005. The banking sector has also seen attempts at consolidation. The merger of two of the major Japanese banksMitsubishi Tokyo Financial Group (MTFG) and UFJ has been welcomed by all. This merger has resulted in the creation of the world's biggest bank in terms of asset size. This merger has also reduced the big banks in Japan to threeMTFG/UFJ, Mizuho Financial Group and Sumitomo Mitsu Financial Group. This good time, however, has come only after more than a decade of trouble.

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