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Yen debt sales by the banks have soared 57 percent this year to 1.16 trillion yen ($9.8 billion), helping drive total Samurai offerings to 2.4 trillion yen. France’s Credit Agricole SA and Germany’s Deutsche Bank AG priced two of 2014’s largest deals in November. The Netherlands’ Rabobank Group, the biggest seller of notes over the previous three years, is planning the first ever Basel III-compliant Samurai offering.

European Central Bank President Mario Draghi is pressuring lenders to bolster their balance sheets after stress tests found a 25 billion-euro ($31 billion) funding shortfall in the region’s banks. Japanese investors hunting for yield after the Bank of Japan expanded its record bond buying are attracted by a premium on Samurai notes more than double local companies’.

“Some European banks face issues in their funding structures and are overly reliant on one or other source,” said Ryosuke Kaneko, a credit analyst in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. “With the BOJ’s additional easing, and no sight of higher interest rates, investor demand for bonds with added premiums can only strengthen.”

The ECB failed 25 of the region’s banks in stress tests in October, saying almost half of them must act to raise more capital. None of the lenders issued Samurai bonds this year. Five of Europe’s 10 largest banks by market value have sold Samurai this year, and nine of the Top 20, data compiled by Bloomberg shows.

Surprise Easing

Samurais offer Japanese investors a yield premium of 43 basis points over government bonds, compared with 21 for local corporate notes, according to Bank of America Merrill Lynch indexes. The gap has widened 4 basis points since Oct. 31 when the BOJ unexpectedly boosted its annual pace of government bond buying to 80 trillion yen, from a 60 to 70 trillion yen range.

London-based Barclays Plc and Lloyds Bank Plc also returned to the Samurai market this year, for the first time in at least three, selling 173 billion yen of notes between them. Financial institutions including Morgan Stanley and JPMorgan Chase & Co. sold 85 percent of Samurai issues this year.

“Many banks will continue to look for funding sources outside dollars and euros,” said Shunya Wu, a syndicate banker in Tokyo at JPMorgan, which co-managed the Lloyds’ deal. “There are benefits in terms of funding costs as well as diversification. Depending on market conditions, the Samurai market can provide very good funding options.”

More Credit

Europeans are ramping up sales even as borrowing costs plunge at home. Central bank stimulus measures, including greater access to credit for companies and households, saw lenders’ average cost of funding in euros tumble by almost half this year to 1.08 percent on Nov. 30, the Bank of America Merrill Lynch data show.

Moody’s Investors Service cut Japan’s credit rating to A1 from Aa3 today, citing heightened uncertainty over whether the nation can achieve its fiscal deficit reduction goals.

For overseas financial institutions, however, the amounts of cash on offer via Samurais are an important factor, according to Yusuke Ueda, a Tokyo-based credit analyst at Bank of America Corp.

“Japan is still number one in terms of excess cash,” Ueda said in an interview. A record 10 issuers have sold 100 billion yen or more in Samurai bonds in 2014, data compiled by Bloomberg show. That’s twice the number of each of the previous two years.

Credit Agricole sold five-, seven- and 10-year securities in November, paying 0.425 percent on 104.1 billion yen of 2019 notes. Deutsche Bank sold 71 billion yen of five-year debentures at a 0.47 yield earlier that month. Moody’s Investors Service rates Credit Agricole one level higher than Deutsche Bank at A2, its fifth-lowest investment grade.

Fed, BoE

From 2018, internationally active banks will be required to consider asset maturities when making choices about their financing mix, the Basel Committee on Banking Supervision, which brings together regulators such as the U.S. Federal Reserve and Bank of England, said in October.

“The need to prevent over-reliance on short-term, volatile sources of funding” is a key lesson from the financial crisis, Stefan Ingves, governor of Sweden’s central bank and the Basel group’s chairman, said at the time.

Sales of Basel III bonds aimed at preventing future taxpayer bailouts rose to $258.9 billion so far this year, almost five times the amount in 2013 as European, U.S. and Chinese issuers ramped up sales, Bloomberg-compiled data show.

Mitsubishi, Sumitomo

Rabobank, cut by Standard & Poor’s last month to A+ from AA, has sold Basel III notes in euros and sterling, and is now looking to sell in yen after Japan’s two biggest domestic banks, Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc., did so for the first time this year.

Paris-based lender BPCE SA has become the latest European Samurai issuer, offering five-year notes in a sale planned for tomorrow, a person familiar with the matter said Nov. 28.

“Japanese investors, be they life insurers or the other institutional investors, have embarked on a huge quest for yields,” Olivier Perquel, head of financing and global markets for wholesale banking at Natixis SA, part of BPCE, which sold 2013’s biggest Samurai deal, said in an interview last month. “We like the Japanese market very much.”