Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. remained the three largest banks in Japan by assets, even as the expiry of subsidized loan programs for pandemic-hit businesses and softer credit growth squeezed balance sheets.

Mitsubishi UFJ Financial Group stayed at the top of the list of the 20 largest banks in Japan with assets of $2.910 trillion at the end of March 2023, down 5.46% from the same period last year, according to S&P Global Market Intelligence data. Sumitomo Mitsui Financial Group was second on the list with assets down 4.14%, while Mizuho came in third with assets down 2.03%.

Nearly all of Japan's largest banks saw their assets decline compared with a year ago, as government-subsidized loan programs for pandemic-hit companies expired and their securities investments dropped amid increasing volatility in global markets. Still, analysts expect the contraction to be temporary as Japanese lenders pursue their expansion strategies.

"Assets reduction seems temporary," said Takahide Kiuchi, executive economist at research and consulting firm Nomura Research Institute. "[The Japanese banks] could expand assets, including risk-weighted assets, as they beef up an expansion strategy."

Japanese banks, mainly the three megabanks, seek to acquire assets in overseas markets, primarily Asia, to secure higher returns, as they face ultralow interest rates and a declining population at home. In addition, credit growth has remained subdued in Japan even after recovering on the back of government-subsidized loan programs for pandemic-hit businesses. Loans and discounts of major, regional and shinkin banks in Japan grew 3.1% in the quarter ended March, up from 0.4% a year ago but down from 6.2% recorded in the same quarter of 2021, according to data from the Bank of Japan.

Japan Post Bank Co. Ltd. came in fourth in the ranking with total assets of $1.727 trillion as of March 31, according to Market Intelligence data. Of the 20 banks, 12 maintained their rankings from last year, five moved up in ranking, and three moved down.

Japanese banks that saw the biggest declines in total assets included Mebuki Financial GroupInc. with a year-over-year drop of 19.02%, The Norinchukin Bank with a decrease of 18.66%, North Pacific Bank Ltd. with a 15.55% decrease and Kyushu Financial Group Inc. with a contraction of 15.02%.

Internet lender Rakuten Bank Ltd., which completed its IPO in April, was the only bank in the sample that logged a year-over-year increase in total assets. The lender's total assets grew 11.55% to $87.18 billion as of March 31, moving up six notches to secure the 20th slot in the ranking.