Takashi Morimura | Blockchain Consultants

No joy at home, and little more abroad.

That’s the situation facing Japan’s megabanks, which have bet big expanding overseas only to find gains elusive. At the same time, they’re not benefiting from the pickup in household lending domestically. Prime Minister Shinzo Abe’s decision to call a snap election for later this month and the likelihood negative interest rates, introduced in early 2016 to encourage spending, will persist won’t improve matters.

Thanks to those low interest rates, domestic loans, particularly mortgages, are accelerating. But that business is mainly going to the nation’s regional banks, who cater more to households.

What’s even more worrying is that international operations, supposedly a savior of businesses coping with unfortunate local demographics, are also hurting. In the year ended March, overseas net interest margins fell at Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. The latter two also posted even lower overseas net interest margins than at home, Fitch Ratings Ltd. noted. Offshore advances, hurt by higher funding costs, grew in the single digits and will continue to do so, according to director Naoki Morimura.

There are two reasons for the decline. First, banks in the international markets where the trio have been operating are becoming more defensive about defending their own turf. And second, U.S. regulations are increasing the cost of short-term funding such as commercial paper, forcing the megabanks to rely on more expensive pools like customer deposits and longer maturity bonds. The three financial institutions are also trying to keep risk-weighted assets under control, and are therefore more cautious about any rapid increase in overseas loans.

There are some positives. Mitsubishi UFJ has completed a few buybacks and, according to CLSA analyst Makoto Kuroda, Sumitomo Mitsui may be next to reward investors, since it has sufficient capital. And in the first quarter ended June 30, all three made money selling stock they held in other Japanese companies. With authorities pushing to unwind the country’s prevalent cross-shareholdings to improve corporate behavior, more such transactions could be in the works.

Fintech is another potential bright spot. Japan’s large lenders are investigating setting up digital currencies as China’s Alipay, owned by Jack Ma’s Ant Financial, enters a market where cash is still king. Analysts say Japan’s banks are especially keen to have their own digital currencies during the 2020 Olympic Games in Tokyo, when thousands of visitors from mainland China will be using Alipay. A consortium led by Mizuho and Japan Post Bank Co. is working on J Coin, an electronic currency that can be used on cellphones, while Mitsubishi UFJ is developing a blockchain-based alternative called MUFG Coin.

But none of that may be enough to improve the here and now for Japan’s big banks. With appetite from corporates for capital expenditure modest at best and persistent downward pressure on net interest margins, investors won’t have to try too hard to find a happier place to be.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.