Japan’s biggest banks are predicting their highest profits in years, though a cautious outlook is holding them back from returning surplus capital to shareholders.
Net income at Mitsubishi UFJ Financial Group Inc., the nation’s biggest lender, is poised to surge to 1.3 trillion yen ($9.6 billion) for the year ending March 2024, according to a filing on Monday, which will be a record. Sumitomo Mitsui Financial Group Inc.’s profit is likely to rise to 820 billion yen, the most in 10 years, while Mizuho Financial Group Inc. sees profit rising to 610 billion yen, the most in eight years.
Even with these strong numbers, the lenders are refraining from undertaking share buybacks. The banks cite uncertainty in the financial sector, which has been rocked by recent collapses of a handful of US regional lenders. Paired with a gloomy global growth outlook amid rising interest rates and lingering inflation, the lenders have been seeking ways of growth from overseas expansion to acquisitions.
Shares of MUFG rose 2.7% at 9:13 a.m. in Tokyo, and Mizuho gained 0.9%. Sumitomo Mitsui dropped 1%. The benchmark Topix index climbed 0.4%, heading for the highest close since 1990.
MUFG and Sumitomo Mitsui, Japan’s second-largest lender, said they will hold off deciding on share buybacks until their first-half results. “We are making ourselves resilient for any contingencies,” MUFG’s Chief Executive Officer Hironori Kamezawa said at a briefing.
The banks’ decision to forgo buybacks contrasts with the trend among Japanese companies this earnings season to boost shareholder returns. Dai-Ichi Life Holdings Inc. shares jumped on Monday after it announced plans to repurchase as much as 120 billion yen of its stock, while Japan Post Holdings Co. said it will buy back up to 10% of its shares.
US Growth
Sumitomo Mitsui’s CEO Jun Ohta expects solid loan demand in Japan as well as overseas this year. Some credit quality in the US might worsen on higher interest rates, and the lender is getting more cautious on commercial real estate there, Ohta said in an earnings briefing.
In the US, he is expecting continued growth helped by a recent deal to triple the lender’s stake in New York-based investment bank Jefferies Financial Group Inc. Mizuho CEO Masahiro Kihara said he sees big potential in the US debt capital markets business.
Kihara said the lender is also strengthening advisory services in equity capital markets and M&A. “It’s important to boost our capacity there,” he said at a briefing.
Here are other details from the banks’ results:
- For its fiscal fourth quarter ended March, MUFG posted net income of 773.3 billion yen, higher than 60.4 billion yen a year ago. SMFG’s net income fell more than 50% to 39.8 billion yen. Mizuho’s profits also fell to 12.3 billion yen, from 51.8 billion yen over the same period
- MUFG sees bad loan costs of 300 billion yen for the new fiscal year vs 674.8 billion yen the previous year. SMFG expects such costs of 230 billion yen vs 210.2 billion yen. Mizuho expects bad loan costs of 100 billion yen this fiscal year vs 89.3 billion yen the year ended
- Under a new business plan announced Monday, SMFG said it plans to enhance its fee business as well as further expand in the US and Asia.
--With assistance from Russell Ward and Kevin Dharmawan.
(Updates with bank shares in the fourth paragraph)