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According to a Bloomberg report, following the footsteps of the U.S. banking major The Goldman Sachs Group, Inc. (GS - Analyst Report), some of Japan’s key banks are coming up with investments in the country’s domestic solar power industry. Among these banks, Mitsubishi UFJ Financial Group, Inc. (MTU - Analyst Report), Mizuho Financial Group, Inc. (MFG - Snapshot Report) and Sumitomo Mitsui Financial Group Inc. (SMFG - Snapshot Report) are planning to invest in the solar business on the anticipation of huge returns.

Notably, in 2012, the investment in Japanese solar installations was 223 billion yen. Therefore, these Japanese banks anticipate investments to reach 1.8 trillion yen ($19 billion) by 2016. The expected hike is primarily attributable to the Japanese government’s subsidy program, which was initiated in Jul 2012.

This program is anticipated to propel Japan as the world’s third-largest market of solar power in 2013. The incentive related to the subsidy program is almost three times the sum that countries like Germany offers to its solar industries.

The subsidy program had an instantaneous impact on Japan’s solar business. Notably, domestic shipment of solar cells and modules jumped 80% to 627 megawatts (MW) in Jul to Sep 2012 compared with the prior-year period. Further, this prompted international biggies such as Goldman and IBM Japan Ltd. to enter the Japanese solar industry.

However, the opportunities in the solar industry may not last for long as the policies will likely be reversed or terminated. The Japanese government anticipates that the subsidies, better known as feed-in tariffs, will be the primary factors behind enhancement of fresh investments. But the incentives for solar energy might be brought down to the range of 35–39 yen a kilowatt-hour (kWh), from the existing rate of 42 yen per kWh for 20 years.

For the domestic Japanese banks, investing in the flourishing solar industry would partially mitigate the reduction in lending that occurred in the last 3 years. Japanese banks were highly affected by the sluggish macroeconomic environment, which resulted in lack of enthusiasm from the borrowers.

We believe that the solar boom will result in the banks collecting more revenues. However, there is also fierce competition among the banks for gaining control of the market.

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