Japan Megabanks See Fourth Straight Combined Profit Fall

(Bloomberg) -- Earnings reports by Japan’s three megabanks on Monday pointed to a fourth straight fall in combined annual profit, even as the impact of negative interest rates begins to ease.

Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc., and Mizuho Financial Group Inc. forecast a 4.8 percent drop in combined net income to 2.13 trillion yen ($18.8 billion) in the fiscal year ending March 2018 from the previous 12 months.

MUFG, Japan’s largest bank, painted a rosier picture than its peers in forecasting a 2.5 percent profit increase. Sumitomo Mitsui projected an 11 percent fall, while Mizuho sees net income dropping 8.9 percent.

MUFG’s overseas exposure, including its holding in Morgan Stanley, helped it forecast a rise in profit, said Michael Makdad, a bank analyst in Tokyo at Haitong International Securities Group Ltd. "It’s also a function of their conservative guidance last year," he said.

In a report late Thursday, Credit Suisse Group AG analyst Takashi Miura said MUFG was poised for profit growth due to subsidiary restructuring and credit cost provisions.

Rie Nishihara, a senior analyst at JPMorgan Chase & Co. in Tokyo, wrote in a report leading up to the results that the short-term impact of shrinking margins had more-or-less run its course, although uncertainty over factors such as geopolitical risk still weighed on the lenders.

Weathering Storm

Toyoki Sameshima, a senior analyst at BNP Paribas SA in Tokyo, said before the results that top-line profit can’t be expected to grow while the effects of negative interest rates remain.

"The past year has been about weathering the storm with headwinds both in Japan and overseas,” Sameshima said. He said negative interest rates and low share prices hit Japanese banks’ retail and corporate business, and their overseas operations were affected by factors including the yen’s strength in the first half and the U.K.’s vote to leave the European Union.

Sumitomo Mitsui was the only megabank to exceed average analyst estimates for the year ended March:

  • MUFG: 926.4 billion yen vs estimate of 938.4 billion yen
  • Mizuho: 603.5 billion yen vs 619 billion yen
  • Sumitomo Mitsui: 706.5 billion yen vs 704.4 billion yen