What will be the main drivers of Japanese mega banks' overseas loan growth?

Average overseas NPL ratio stood at 0.7% as of end-September 2016.

Fitch sees the mega banks’ overseas loan expansion as a direct response to a sustained weak domestic environment. It is focused mainly on Asia and the US where they enjoy geographical proximity, trade connectivity (including via Japanese businesses operating within the region) and/or familiarity. Asia (specifically, south-east Asia) offers huge potential for development, while the US offers both relative stability and growth potential.

Here's more from Fitch:

The mega banks’ average overseas NPL ratio stood at 0.7% as of end-September 2016, which is considerably lower than the domestic NPL ratio. Nevertheless, this still represents a slight deterioration (credit costs have risen) – mainly from the natural resources sectors (specifically oil and gas) against a backdrop of lower commodity prices.

Fitch expects overall asset quality to be manageable, with no significant increase in credit costs associated with the banks’ resource sector exposures, despite mounting pressures on their overseas portfolios as a whole.

Growth in Asia has subsided as uncertainties have risen. The banks tend to expand into riskier markets when prospects are more positive/certain, but reassess their strategy when risks crystallise (i.e. somewhat reactive more than proactive). Fitch expects the mega banks to again review their Asian growth strategy as and when the region shows signs of greater stability.

That said, the pace of overseas loan growth will be driven not only by uncertainty as to the operating environment but also competition and evolution of regulation, including capital requirements.