For years, Prime Minister Shinzo Abe urged lenders to reduce their stakes in client companies. A bank that owns shares in a loan customer may be inclined to roll over debt indiscriminately. And the bank's own stock may be vulnerable to daily market moves if the institution holds a disproportionate amount of equity in its portfolio.
The big banks resisted these calls: Their stakes in other listed companies were little changed in the last three years, Nomura Securities Co. estimates. An extreme example is Bank of Kyoto Ltd., whose 682 billion yen ($6.2 billion) in stock holdings at the end of March exceeded its market cap. The bank, which owns hot technology shares such as Kyocera Corp., Nintendo Co. and Nidec Corp., told Bloomberg News in January 2016 that it had no intention of selling them. It's no surprise that the bank trades at only 0.5 times book value. 
But a prolonged zero-rate policy is starting to bite.
Take Mitsubishi UFJ Finanancial Group Inc., the megabank that reported the best June quarter earnings of the group. The spread between its lending and deposit rates narrowed to 0.87 percent, from 0.92 percent a year ago, while the loan-to-deposit ratio was a paltry 60 percent. There's just no appetite for loans in Japan, even if corporations can borrow at less than 1 percent. 
So share sales are doing the heavy lifting. The most striking case was Mizuho Financial Group Inc., which had a slight decline in net profit from a year ago. Without equity disposals, there would have been a profit warning -- capital gains from those sales accounted for more than half of income in the latest three-month period.

Thanks to those disposals, all three banks were on track to meet their guidance targets for the year that ends next March.

Even at this pace, these sales are just flakes of gold. After a 25 percent gain in the Topix Index in the last 12 months, the megabanks' portfolios are a mountain of wealth. Mitsubishi UFJ, Mizuho and Sumitomo Mitsui Financial Group Inc. combined could have realized almost 7 trillion yen in capital gains had they sold their holdings at the end of June: That's more than 30 percent of their combined market cap.

By comparison, the banks' holdings of domestic bonds and other readily sold assets, such as foreign securities, represent hardly any upside. 
Japan's banks are in a difficult place. While the rest of the G-10 countries are moving toward higher borrowing costs, the Bank of Japan is spinning its wheels, with little sign of improved lending rates.
A happy unintended consequence of that stasis, however, is that the megabanks are unwinding cross-shareholdings, and improving their governance.