Japanese Banks Face Headwinds Even With Profit Goals in Sight
Japanese Banks Face Headwinds Even With Profit Goals in Sight
(Bloomberg) -- Japan’s biggest banks are losing profit drivers even as they remain on course to achieve their full-year earnings goals.
Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. all posted declines in fiscal second-quarter net income as they struggled to make money from their core business of lending.
“The economic outlook remains uncertain for the second half,” MUFG CEO Kanetsugu Mike said at a briefing on the results. “The environment for the financial industry remains tough.”
Earnings at the three banks have recently been driven by gains on sales of stocks and bonds, which have made up for the slump in lending. Yet there’s no guarantee that they can keep relying on those transactions, putting pressure on the lenders to accelerate cost cuts as shrinking interest rates squeeze them at home and abroad.
When you look beyond the bottom line, “it’s not terrible” but there are “not very many exciting parts,” Michael Makdad, a Morningstar Inc. analyst in Tokyo, said on Bloomberg Television.
Here’s a closer look at some of those.
Results for the first half were “almost all driven by gains on sales of bonds after U.S. interest rates declined,” Makdad said. Now that the Federal Reserve appears to have paused on rate cuts, it may be tougher to book such gains going forward.
Credit costs are rising as the banks replenish reserves after drawing down excess provisions in the previous year. While that doesn’t necessarily portend a flood of bad loans, it’s one less profit driver.
The banks have been expanding abroad over the past decade in search of higher returns. Yet with interest rates dropping worldwide, net interest margins even in regions like Southeast Asia are being squeezed. Rather than overseas expansion, a better profit driver “would be expense cuts in Japan,” Makdad said.
| For More on Japanese Banks’ Results | |
|---|---|
| MUFG Profit Falls on Swelling Bad-Loan Costs, Stock Losses | |
| Sumitomo Mitsui Profit Declines on Slump in Lending, Trading | |
| Mizuho Joins Japan’s Biggest Banks in Posting Lower Profit |
To contact the reporters on this story: Taiga Uranaka in Tokyo at turanaka@bloomberg.net;Yuki Hagiwara in Tokyo at yhagiwara1@bloomberg.net
To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net, Russell Ward
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