The Global Financial Crisis (GFC) severely impacted the manner in which banks carried out their activities. A host of regulatory initiatives aimed at improving the soundness and stability of the financial services industry meant that the ‘status quo’ was no longer a feasible option for many international players. Faced with significant write-downs, capital shortfalls and liquidity constraints, a number of European and American banks sought to actively reduce the size of their balance sheets, resulting in a withdrawal from non-core, offshore lending markets. For some, this meant offloading lending portfolios to rival firms. Mitsubishi UFJ Financial Group (MUFG), Mizuho Financial Group (Mizuho), and Sumitomo Mitsui Financial Group (SMFG) (together the Japanese ‘megabanks’), grappling with anaemic domestic loan growth and a rapid deterioration in interest margins, were quick to capitalise on these opportunities, plugging funding gaps left by many of the global banks through a combination of organic and inorganic means. Armed with huge domestic deposit bases and strong balance sheets that had been cleaned up following the Asian Financial Crisis in 1997, the megabanks were in a prime position to pursue an offshore lending-led expansion strategy. After years of targeted growth, the megabanks have now positioned themselves as major contenders in the global syndicated lending space. They have also captured considerable market share in every country in which they operate, with particular success in emerging markets and cross-border lending. Similar success has been achieved in project financing, where they rank as top-5 players in several of their key operating markets. Despite solid headline results, this offshore lending- led strategy is now facing a number of challenges. Interest spreads outside of Japan have been declining in line with a global easing in monetary policy. In the search for returns, the megabanks have been shifting down the credit curve, lending to riskier clients and projects. This is having broader implications for the quality of their loan books. Faced with considerable pressure from players such as the Chinese banks, who have been aggressively building their offshore lending business, margins are being hit, impacting the overall profitability of the business. While we see considerable scope for the megabanks to optimise their current lending platforms and enhance profitability, we believe they need to focus greater attention on growing their fee-based income if they are to remain globally relevant universal banks in years to come. Given the strength of their balance sheet relationships and the ongoing challenges being faced by their international peers, we feel the megabanks are in a prime position to develop their fee-based businesses. Through rebalancing their interest and non-interest income streams to be more in line with rival global universal banks, we feel each of the megabanks has the potential to earn an additional USD 1.5-2.5 billion in annual revenue within five years. We see this as a realistic target that would transform the megabanks from mere sumo-sized international lenders to credible global players in the corporate and investment banking space.