OREANDA-NEWS. Fitch Ratings' stable sector and rating outlooks for Japanese mega banks reflects our expectation that their profitability will be stable and capital positions solid for 2016. This is backed by our view that the operating environment in Japan will remain stable, although it may face headwinds from China and elsewhere. Credit costs are likely to increase to "normal" levels, but not enough to hurt the banks' overall profitability.

Fitch believes that the banks' capital positions will continue to improve due to their stable operating performances and reduction in vulnerability to market volatilities as they trim their investment exposure. The banks' profiles would also be supported as they build risk buffers to meet the new total loss-absorbing capacity (TLAC) requirements by 2019.

Fitch expects Japanese mega banks' overseas loan growth to slow as economic activity abroad decelerates and regulatory capital standards become more stringent. The banks are likely to invest more selectively overseas. The banks face greater foreign-currency liquidity management needs although their overall liquidity position remains strong.