Japan's three megabanks are cautious about their outlook after three quarters of strong growth in earnings as they prepare for economic uncertainty and potentially higher U.S. interest rates.
Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. all appear on course to achieve, or even beat, their full-year earnings estimates. MUFG and SMFG earnings were helped by write-backs of prior loan loss provisions for pandemic-related bad loans that ultimately did not materialize as government support kept many businesses afloat. Mizuho increased its provisions but reported higher income from its businesses.
MUFG's net profit for the April-to-December 2021 period surged 76.3% year over year to a record ￥1.07 trillion, surpassing the full-year target of ￥1.05 trillion for the fiscal year ending March 31, according to its earnings announcement on Feb. 2. Still, Japan's largest bank by assets did not revise that forecast upward.
SMFG reported a 44% year-over-year gain in net profit in the nine months to ￥624.8 billion, and Mizuho said its income was up 35% to ￥478.6 billion. Their nine-month earnings, also announced Feb. 2, show that SMFG had achieved 93% of its full-year profit forecast of ￥670 billion, while Mizuho had reached 90% of its ￥530 billion goal. The two banking groups also made no revisions to their fiscal-year profit goals.
Full-year earnings at the three banks "should beat their estimates," said Toyoki Sameshima, a senior analyst at SBI Securities Co. "There should be no big negative factors for them" for the rest of the fiscal year.
Stronger first half
Japanese lenders had raised their estimates on earnings and dividends midyear after a strong fiscal first half as the world's third-biggest economy recovered from the pandemic. Japan's economy may have grown 1.6% in 2021, following a 4.8% contraction in 2020, according to International Monetary Fund. The IMF projects the economy to grow 3.3% in 2022, trailing the 4.4% growth it predicts for the world economy. A fresh wave of COVID-19 infections has forced 33 of the nation's 47 prefectures to be placed under a quasi state of emergency and may drag on the economy.
The U.S. Federal Reserve is preparing to raise rates faster than the markets had previously estimated to cool inflation, Chair Jerome Powell indicated Jan. 26. Higher interest rates would result in valuation losses on the holdings of Treasurys for Japanese banks and could also make it harder for them to procure capital in the U.S.
Expectations about higher U.S. interest rates will make Mizuho more cautious about asset allocation to foreign securities such as bonds. "We need to discuss how we should foresee the market for the next fiscal year," CFO Makoto Umemiya said at an online conference after the results were announced.
For the last three quarters, MUFG benefited significantly from stronger U.S. operations led by its affiliate Morgan Stanley, in which the Japanese lender owns a 21.3% stake. Net profit from its U.S. partner surged 74% from a year earlier to ￥319.8 billion for the nine-month period, representing about 30% of its overall earnings.
SMFG's results reflected healthier wholesale and global operations, while its retail and market-related businesses weakened. Meanwhile, MFG reported gains in its retail and global corporate operations.
As of Feb. 1, US$1 was equivalent to ￥114.74.
