Japan’s Orix Bank to Extend $2.89 Billion Funding For Renewables Portfolio

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Japanese digital lender Orix Bank will extend roughly 400 billion yen ($2.89 billion) of financing this fiscal year to renewable energy and logistics projects in a bid to diversify its portfolio away from real estate.

The lending, which is to be directed toward project financing, will account for nearly a fifth of outstanding loans projected for the financial year ending March 2024. Orix Bank has plans to further increase credit allocation for the renewable energy sector from the next fiscal year onward.

In addition to renewable energy and the development of logistics facilities, lending also targets other domains, including projects concerning disaster prevention and recycling.

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Orix Bank financed roughly 240 billion yen to logistics centres in Japan for the two years through fiscal 2022. However, the bank will now allocate 400 billion yen this fiscal year alone. Nearly 360 billion yen of this sum will be securitized and sold to insurance companies, regional financial groups, and other investors.

Orix Bank looks to capitalize on the growing interest in environmental, social, and corporate governance (ESG) investments by focusing on securitized loans in the renewables sector. By expanding its lending activities, Orix Bank looks to securitize these loans to enhance asset efficiency. Over 80 per cent of Orix Bank’s outstanding loans are now tied up in investment properties, and repayment periods can last more than three decades. This has adversely impacted asset efficiency.

The digital lender will continue to focus on investment property loans, but it will also work to securitize loans as it diversifies sources of income. For the previous fiscal year, Orix Bank’s return on assets stood at 0.7 per cent. This figure is higher than other Japanese financial institutions since, as a virtual operation, Orix Bank does not run a large network of physical branches.

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While continuing its focus on investment property loans, Orix Bank will actively seek to securitize loans as it diversifies sources of income. At the same time, the groupwide ROA at the parent Orix stands at 1.8 per cent. For the time being, the bank plans to boost ROA to 1 per cent by pursuing debt securitization.