Japan's biggest banks tumbled in Tokyo share trading on Monday as a drop in their latest earnings was compounded by fears that the Bank of Japan's new stimulus measures would hit their bottom line.
Shares in the trio -- Mitsubishi UFJ, Sumitomo Mitsui Financial Group and Mizuho Financial Group -- suffered a sell-off after the central bank on Friday unveiled plans to effectively charge lenders on some deposits.
The negative interest rate policy is intended to increase lending to people and businesses in order to kickstart the world's number three economy and fend off deflation.
The idea is to give commercial banks an incentive not to park their cash at the central bank.
But the move threatens to weigh on bank profits, analysts said, as they battle to drive up lending at home.
Some analysts saw the BoJ bid as a desperate move after three years of Prime Minister Shinzo Abe's big-spending and monetary easing policy known as "Abenomics". This had limited impact on the moribund economy.
"While banks potentially benefit along with the rest of the economy from Friday's valiant attempt by the BoJ to rescue Abenomics, in the short and medium term the sector seems likely to face substantial downward earnings pressure," David Threadgold, analyst at Keefe, Bruyette & Woods, said in a commentary.
He added that the banking unit of Japan Post was most at risk owing to the size of its domestic business.
After markets closed on Monday, Mitsubishi UFJ said its net profit for the nine months through December fell eight percent to 852.3 billion yen ($7.03 billion), as it saw lower gains on its vast debt holdings.
The bank's shares tumbled 5.46 percent, while Sumitomo Mitsui dived 7.61 percent and Mizuho Financial Group dropped 5.87 percent.
Last week Sumitomo Mitsui said net profit dropped more than eight percent, but it added that it would still hit a 760 billion net profit for the fiscal year to March.
Mizuho's profit edged down from a year earlier.
"The new (BoJ) policy is unlikely to dispel growing concerns about the efficacy of Abenomics," said Tobias Harris, a vice president at US-based political risk firm Teneo Intelligence.
"It could take significantly negative rates to convince businesses and households to move out of cash into other assets."
The three-tiered system applies negative interest rates to new reserves parked at the central bank.
"The BoJ may be testing to see what effects a negative rate has on the behaviour of lenders, depositors and borrowers before committing fully to a negative interest rate policy," Harris said.
Takashi Miura, an analyst at Credit Suisse in Tokyo, said the bank share sell-off may be overdone.
"Bank shares are being sold today on concerns of lower margins on loans and securities, as they were on Friday," Miura told Bloomberg News.
"But in reality the megabanks have a high proportion of overseas lending, which will benefit from the weakening yen...I think the market may have gone too far."