Japan’s Regional Banks May Be Underestimating Profit Decline

(Bloomberg) -- Profit at Japan’s regional banks may fall even more than forecast this fiscal year because the lenders haven’t fully accounted for the impact of the coronavirus-fueled economic slump on loan quality, according to Mitsubishi UFJ Morgan Stanley Securities Co.

Publicly traded lenders expect net income to decline 21% in the year ending March, according to the 73 banks that have given forecasts so far this earnings season, Yuusuke Yasuoka, an analyst at the brokerage, wrote in a report Monday.

“There are large risks of undershooting due to a deterioration in credit costs,” Yasuoka said.

Japan has sunk into a recession as Covid-19 slams exports and consumer spending, government data confirmed on Monday. The slump is likely to deepen, making it harder for companies to pay back their debts. Japan’s three biggest banks expect bad-loan costs will almost double to 1.1 trillion yen ($10 billion) this fiscal year, the highest since the global financial crisis.

Of the nation’s 78 publicly traded regional banks, 76 had announced results by last Friday. Excluding three that didn’t give guidance, the lenders projected combined profit of 586.3 billion yen, Mitsubishi UFJ Morgan Stanley said.

Three local banks booked net losses last year but forecast a return to profit in the current period. Of the three, Shimane Bank Ltd. and Shimizu Bank Ltd. have formed capital tie-ups with SBI Holdings Inc., while Michinoku Bank Ltd. made an alliance with a rival bank based in the same prefecture.

©2020 Bloomberg L.P.

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