Mizuho Financial Group Inc., the smallest of three Japanese megabanks, expects its earnings to rise for the third straight fiscal year on sharply lower loan loss provisions, although its larger rival Sumitomo Mitsui Financial Group Inc. expects net profit to remain below pre-pandemic levels this year amid a modest improvement in asset quality.
Mizuho said May 14 that it expects net profit for the current fiscal year ending March 2022 to increase 8.3% to ¥510 billion, after posting 22.4% year-over-year growth in earnings for the fiscal full-year ended March 31. Loan loss provisions, or credit costs as the lender refers to them as, are projected to be halved to around ¥100 billion this year, from ¥204.9 billion in the previous fiscal year.
Sumitomo Mitsui said on 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 before the coronavirus spread to most parts of Japan. Loan loss provisions for this year are expected to drop only around 17% to ¥300 billion, after more than doubling to ¥360.5 billion in the previous fiscal year.
Mizuho has appeared better placed throughout the pandemic due to its relatively strong fee-generating businesses in overseas markets. Meanwhile, Sumitomo Mitsui has been hit by sluggish domestic credit card and consumer finance businesses.
Despite the varying degrees of improvement in earnings and asset quality, analysts expect both megabanks should be able to reach their profit targets this fiscal year due to sufficient capital positions, diversified businesses and the continued recovery of the Japanese economy from the impact of COVID-19.
"Overall, [the two megabanks] look conservative about their earnings outlook and loan loss provisions for this year," said Toyoki Sameshima, an analyst at SBI Securities Co., expecting them to achieve their earnings targets. "They learned last year how to survive the tough time," he added.
Mitsubishi UFJ Financial Group Inc. is scheduled to release its projections for the current fiscal year May 17.
Corporate bankruptcies in Japan in April, the start of the fiscal year for most companies in the country, declined by 36% to 477 from a year earlier, which was the 10th consecutive month of year-over-year drop, according to Tokyo Shoko Research. That was also down from 634 bankruptcies filed in March.
Japan, the world's third-largest economy, is expected to grow 3.1% for 2021 and 2.4% in the following year, reversing from a 5.1% contraction in 2020, according to the IMF. The 2021 forecast for Japan, however, is below a 5.1% growth estimated for the U.S., a 4.2% gain for the EU and an 8.1% expansion for China.
As of May 13, US$1 was equivalent to ¥109.63.
