Do rising interest rates mean profits for regional banks? Risks of unrealized bond losses seen from Shimane Bank's earnings forecast revision
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While rising interest rates are a tailwind for lending, they are a headwind for the value of held bonds. It is also important to check for unrealized losses on securities and capital adequacy.
Japan has also entered a world with interest rates.
When interest rates rise, bank lending rates also tend to rise.
If the margin with deposits widens, profits increase. That is why it is often said that “rising interest rates are a tailwind for bank stocks.” As someone interested in high-dividend bank stocks, I find myself looking forward to this.
However, banks do not just lend money; they also hold securities such as government bonds, so rising interest rates do not necessarily only have a positive effect. It seems risky to view regional banks as a group as having a “tailwind.”
Let’s consider the earnings forecast revision for Shimane Bank (7150) announced on October 16 as an example.
■ Interim ordinary profit revised upward, but full-year net loss expected
The interim ordinary profit forecast was revised upward from 150 million yen to 260 million yen. This is a 73.3% increase compared to the previous forecast.
On the other hand, the full-year net profit/loss forecast went from a profit of 270 million yen to a loss of 5.98 billion yen. The interim period is an upward revision, but the full year is a significant loss. This contrast is the key point of this announcement.
■ Reasons for the full-year loss of approximately 6 billion yen
The full-year forecast is even more contrasting. While ordinary revenue is increasing from 12.16 billion yen to 13.6 billion yen, ordinary profit is being revised from a profit of 330 million yen to a loss of 5.96 billion yen, and the net profit/loss is being revised from a profit of 270 million yen to a loss of 5.98 billion yen.
A major factor is the plan to sell approximately 60 billion yen in securities holding valuation losses between January and March 2027, recording a loss of approximately 6.5 billion yen.
When interest rates rise, bonds bought during low-interest periods become relatively less attractive, and their market prices fall.
Shimane Bank has decided to sell securities with unrealized losses and restructure its portfolio.
While this may lead to improved interest income in the future, it means accepting a large loss first.
■ “Rising interest rates = tailwind for bank stocks” is only half the story
If lending rates rise, interest earned from loans tends to increase. The yield on newly purchased bonds also improves. This is certainly a tailwind.
On the other hand, the valuation of bonds already held falls, and raising deposit interest rates increases funding costs.
If the repayment burden on borrowers increases, it also affects credit costs. Even with the same interest rate hike, the results for each bank differ depending on the composition of their loans and securities.
In addition, along with the loss processing, Shimane Bank announced a capital reinforcement of 10 billion yen through preferred shares underwritten by SBI Shinsei Bank. Going forward, I want to check the capital adequacy after loss processing and the recovery of earning power.
■ What I look for in regional bank stocks
If I were to buy bank stocks, in addition to dividend yield and PBR, I would want to check the following three points:
1. How much are the valuation gains/losses on securities relative to capital?
2. How much in government bonds and stocks are held, and what is the duration until the bonds mature?
3. How are core business profits and expenses for loan losses (credit costs) trending?
The case of Shimane Bank cannot be applied directly to all regional banks. Even so, I feel the importance of looking not only at the profits in the financial statements but also at the contents of the balance sheet.
For bank stocks that look undervalued due to high dividends, it is worth checking once ‘what they hold and what kind of risks they carry’.
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■ Sources
Shimane Bank: Revision of Interim Earnings Forecast for the Fiscal Year Ending March 2027
Shimane Bank: Revision of Full-Year Earnings Forecast and Loss on Sale of Securities
Shimane Bank: Regarding Capital Enhancement
Shimane Bank: Regarding Issuance of Class C Preferred Shares
Shimane Bank: Disclosure Magazine ‘Shimagin’s Current Status 2026’
*This article is a personal analysis based on materials published on October 16, 2026. As there is a possibility of errors in figures or interpretations, please be sure to check the official announcements from Shimane Bank for formal information. This does not constitute a recommendation to buy or sell any specific stock.