CEO Morning Brief

Japan’s Biggest Banks Forecast Record Profits as Rates Rise

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Publish date: Thu, 16 May 2024, 09:51 AM
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TheEdge CEO Morning Brief

(May 15): Mitsubishi UFJ Financial Group Inc (MUFG), Sumitomo Mitsui Financial Group Inc (SMFG) and Mizuho Financial Group Inc predict reaping combined record profits of more than ¥3.3 trillion (US$21 billion or RM99.71 billion) for the year started in April, after the country’s central bank ended its policy of negative interest rates.

MUFG, Japan’s largest lender, expects net income of ¥1.5 trillion, a 0.7% increase from the previous year. SMFG aims for a 10% increase to ¥1.06 trillion, and Mizuho expects profit to gain 10.5% to ¥750 billion.

The banks are benefiting from an earnings boost following the Bank of Japan’s (BOJ) shift in March. Big banks, including the three, have about ¥200 trillion at the central bank reserve and with the annual 0.1% interest on the amount beyond the minimum requirement, they earn about ¥200 billion.

MUFG chief executive officer Hironori Kamezawa said the bank was helped by changes it made to its business model during the years of negative interest rates. The company increased fee businesses and cut costs. The bank also benefited from the weak yen because of its expansion overseas.

“We had really strong results,” said Kamezawa. “The structural reforms of the past couple of years bore fruit.”

MUFG plans to sell about ¥350 billion in so-called strategic holdings over the next three years.

At SMFG, net income surged more than fourfold to ¥170 billion for the fiscal fourth quarter ended in March. Earnings were helped by strong loan demand, driven by a pickup in corporate client activity. Mizuho’s fourth-quarter net income more than tripled to ¥36.7 billion.

“Everything worked favourably for the banking business,” SMFG CEO Toru Nakashima said at a briefing.

The end of the BOJ’s negative rates policy raised SMFG’s net interest income by ¥40 billion, and it will gain another ¥40 billion for each increase of 10 basis points in the policy rate. Mizuho said the end of negative rates added a net ¥45 billion to its profit.

Both MUFG and SMFG plan to buy back about ¥100 billion worth of their own shares. SMFG also plans to raise its dividend by ¥60 to ¥330 per share.

Mizuho CEO Masahiro Kihara, meanwhile, said the bank would not do a share buy-back until it had built up sufficient capital reserves for investing in its growth strategy.

Source: TheEdge - 16 May 2024

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