Japanese megabanks took only about 2% of their full-year loan loss provisions against expected credit losses combined in the fiscal first quarter, prompting some analysts to expect stronger momentum in earnings growth and asset quality improvement in the coming quarters.
In the three months ended June 30, Sumitomo Mitsui Financial Group Inc. booked ¥10.3 billion in loan loss provisions, or 6% of its ¥170 billion target for the fiscal full year ending March 2022. Mitsubishi UFJ Financial Group Inc. budgeted ¥5.1 billion as buffers against troubled loans, or 1.4% of its full-year target of ¥350 billion.
Mizuho Financial Group Inc. reported a writeback of ¥2.6 billion in provisions it made earlier while keeping its full-year provision target at ¥100 billion.
"There is a 50-50 chance for them to revise the forecast [for loan loss provisions and net profits]," said Toyoki Sameshima, a senior analyst at SBI Securities Co.
Japan's Cabinet Office said in early July that the world's third-largest economy will likely rebound to pre-pandemic levels later this year amid vaccine rollouts and the recovering global economy.
Michael Makdad, an analyst at Morningstar, is more optimistic. "There is very good chance" for the megabanks to do so, he said.
Lower credit costs helped all three megabanks post strong profit growth in the fiscal first quarter. Among the trio, SMFG reported the strongest year-over-year earnings growth, more than doubling to ¥203.24 billion from ¥86.10 billion. The lender achieved around 34% of its projected net profit for the full fiscal year.
MUFG's first quarter net profit more than doubled to ¥383.08 billion from ¥183.49 billion a year earlier, while Mizuho's earnings also more than doubled to ¥250.54 billion from ¥122.38 billion a year ago. Both megabanks achieved almost half of their full-year earnings target in the quarter.
"There is a higher probability now than in May that we can achieve the bottom-line [the net profit target],” Makoto Umemiya, Mizuho's CFO, said at an investor conference July 30. Mizuho and other megabanks set targets for the current fiscal year in May when they reported their previous year results. MUFG cited the U.S. economic recovery as a major reason for the sharp contraction of its loan loss provisions for the fiscal first quarter.
"We have to watch the loan loss provisions very cautiously … as another emergency state has been issued [to contain the spread of the coronavirus], although we didn't use credit cost in the first quarter," he said.
The Japanese government on July 30 issued the fourth state of emergency for Tokyo, where the Olympic games are being held, after the number of infections in the metropolitan area hit record highs, potentially leading to higher default risks in Japan.
As of July 30, US$1 was equivalent to ¥109.76.
