Japan's three largest banks are likely to hit their full-year profit goals for the year ending Mar. 31, barring any final-quarter shocks, after higher interest rates drove up their overseas net interest margins.
Mizuho Financial Group Inc.'s net profit in the April-to-December 2022 period was ￥543.2 billion, higher than its full-year target of ￥540 billion, it reported Feb. 2. Rival Sumitomo Mitsui Financial Group Inc. reported a nine-month net profit of ￥766 billion, just shy of its ￥770 billion full-year goal, on Jan. 30.
Mitsubishi UFJ Financial Group Inc. will account for an extraordinary gain of ¥801.7 billion upon the sale of U.S. banking unit Union Bank, it said in its earnings report Feb. 2. Japan's biggest lender reported a loss on the unit's sale due to an accounting treatment, triggering a 67.9% plunge in its net profit in the nine-month period to ￥343.1 billion. Had the extraordinary gain been accounted for, it would have achieved 114% of its ¥1 trillion annual profit goal for the year ending Mar. 31.
Higher interest rates, driven by the U.S. Federal Reserve, helped improve the megabanks' overseas net interest margins. MUFG's overseas net interest margin increased to 1.15% in the fiscal third quarter, from 0.94% a year ago. Weakness in the Japanese yen, which hit an all-time low of about 150 to the U.S. dollar in October 2022, also helped Japanese lenders' income from abroad.
Growing loans
While Mitsubishi’s overall outstanding overseas loans fell to ￥51 trillion in December 2022 from ￥51.8 trillion in September, its lending to the Americas increased to ￥13.8 trillion from ￥11.2 trillion. Sumitomo Mitsui grew overseas loans to ￥34.5 trillion in December from ￥28 trillion a year earlier, while Mizuho's overseas loans climbed to $273.7 billion from $241.9 billion over the same period.
Japanese megabanks do face drag on their overseas bond investments, mainly in U.S. Treasurys. Mitsubishi reported a valuation loss of ￥1.57 trillion from its foreign bond investments as of December 2022, while Sumitomo Mitsui is sitting on a notional loss of ￥855.3 billion. Mizuho's valuation loss totaled ￥916.4 billion.
Whether full-year profit goals are met will depend on losses in the fourth quarter, said Toyoki Sameshima, a senior analyst at SBI Securities, adding that the three are expected to achieve their full-year profit targets.
Michael Makdad, an analyst at Morningstar, shared this sentiment.
All three banks kept their annual profit projections unchanged.
As of Feb. 1, US$1 was equivalent to ￥129.30.
