Mitsubishi UFJ Financial Group Inc. on May 17 set a net profit goal of over ¥1 trillion and a return-on-equity target of 7.5% by March 2024, as Japan’s largest megabank seeks growth from its overseas operations and accelerates cost-cutting measures globally.
The company unveiled the targets as part of its three-year plan after posting a 47% year-over-year growth of net profit at ¥777.02 billion for the fiscal year ended March 31 on cost-cutting, profit from sales of securities and increased lending in the U.S. and Asian countries such as Thailand.
The net profit goal, if achieved, will be MUFG’s best performance since the fiscal year ended March 2015 when its earnings totaled ¥1.034 trillion. The ROE target will also be the company’s highest since 2018.
Achieving the ROE target is "our strongest commitment," Tetsuya Yonehana, MUFG's CFO, said during an analyst briefing. To reach that goal, "how we should manage our capital will be important," he added, without elaborating.
To achieve the three-year target, MUFG intends to increase operating profit to ¥1.4 trillion from ¥1.23 trillion in the last fiscal year, while cutting about ¥80 billion in costs including wages and facilities in and outside Japan during the same period. It will also accelerate efforts in digitalization to boost profit while containing costs.
"Lofty" goal
The 2024 net profit target “is a lofty goal to achieve,” Toyoki Sameshima, an analyst at SBI Securities Co., said. He added that whether MUFG will achieve a net profit of ¥850 billion projected for the current fiscal year ending March 2022, or up 9.4% year over year, will be a “key test” that demonstrates how effective the company is reaching its business objectives.
MUFG is joining Mizuho Financial Group Inc. in extending earnings growth beyond the pandemic, while Sumitomo Mitsui Financial Group Inc. is still trying to recover its net profit to the pre-pandemic levels.
Among the three megabanks in Japan, MUFG, which has accumulated a 20.84% stake in Morgan Stanley since the 2008 global financial crisis, has been most aggressive in opening branches abroad and investing in non-Japanese banks, with a particular focus on emerging Southeast Asia.
However, as the pandemic has hit many emerging economies, MUFG, which extends more loans overseas than Sumitomo Mitsui and Mizuho Financial, is also suffering from deteriorating asset quality.
MUFG plans to slash loan-loss provisions for the current fiscal year to ¥350 billion from ¥515.5 billion in the previous year. However, it will still be higher than ¥222.9 billion provisions in the fiscal year ended March 2020 before the pandemic spread to most parts of Japan.
MUFG’s securities arm is also hit by the unwinding of leveraged bets by now-collapsed Archegos Capital. The Japanese bank said earlier it would book a US$270 million loss related to the incident.
Ongoing cost-cutting is another priority of MUFG. For the fiscal year ended March 31, MUFG’s expense ratio fell to 68.7% from 70.2% a year earlier.
Dividend boost
MUFG plans to pay a total of ¥27 per-share dividend for the current fiscal year, higher than the ¥25 per share in the previous two years. The goal is to raise the payout to ¥31 to ¥32 per share by the fiscal year ending March 2024, according to Yonehana.
Mizuho said May 14 that it aims to post an 8.3% increase to ¥510 billion in net profit for the current fiscal year, after reporting a 22.4% year-over-year growth in earnings for the previous fiscal year. Loan loss provisions at the bank group are projected to be halved to about ¥100 billion this fiscal year, from ¥204.9 billion in the previous fiscal year.
Meanwhile, Sumitomo Mitsui said the same day that its earnings for the current fiscal year are expected to rise 17% to ¥600 billion, after reporting a 27.1% decline for the previous fiscal year. The projection will still be lower than the net profit of ¥703.88 billion for the fiscal year ended March 2020.
Loan loss provisions for this year are expected to drop only about 17% to ¥300 billion for Sumitomo Mitsui, after more than doubling to ¥360.5 billion in the previous fiscal year.
As of May 14, US$1 was equivalent to ¥109.40.
