Two Japanese megabanks increased their net income forecasts for the year ending in March 2024 after posting solid results for the fiscal first half, as they benefited from growth in corporate loans and healthy net interest margins overseas.

Sumitomo Mitsui Financial Group Inc. (SMFG) said Nov. 14 that it aims to generate ￥920 billion in net income for the fiscal year ending March 31, 2024, up from its earlier forecast of ￥820 billion. SMFG's statement came a day after Mizuho Financial Group Inc. (Mizuho) raised its net income forecast to ￥640 billion from ￥610 billion previously. Meanwhile, Mitsubishi UFJ Financial Group Inc. (MUFG) kept its forecast for the year at ￥1.300 trillion, even after earning over 70% of its full-year net income target in the April-September period.

"The interest rates in the US will remain high for a while," said Hironori Kamezawa, MUFG CEO, said during a Nov. 14 press conference. "And Japan will return to the positive territory of interest rates." Kamezawa cited the uncertain prospects for the Japanese economy as one of reasons the bank decided to keep its full-year earnings target unchanged.

While the US interest rates stay high to tame inflation, expectations are growing in Japan that the country is moving closer to ending its negative interest rate policy, possibly in the first half of 2024. Given the possibility of a change in Bank of Japan's monetary policy stance, the Japanese megabanks aim to increase deposits to extend more loans for a higher margin.

"The US will likely enter a final phase of rising interest rates," Fumihiko Ito, SMFG CFO, said during an earnings conference Nov. 14.

Solid results

For the fiscal half that ended in September, MUFG's net income quadrupled on year to ￥927.2 billion, and Mizuho posted a 24% gain on year in net income to ￥415.7 billion for the six months. SMFG's profit was little changed at ￥526.5 billion.

Overall, the megabanks' healthy performance got support from growth in corporate loans in and outside Japan. SMFG's Americas loans edged down 3.4% year over year to $113 billion, while domestic lending grew 4% to ￥61.6 trillion. Mizuho increased loans in the Americas to $106.5 billion in the April-to-September period from $91.3 billion a year ago, while its domestic lending rose to ￥55.2 trillion from ￥54.6 trillion.

MUFG, on the other hand, boosted its outstanding loans in the Americas 41% on year to ￥15.8 trillion as of September, while its domestic loans remain little changed at ￥66.5 trillion.

MUFG said it will buy back up to ￥400 billion of its own shares, while SFMG will repurchase ￥150 billion. The announcements came after the Tokyo Stock Exchange in March asked companies with price-to-book value ratios of less than 1.0 to disclose specific policies and initiatives to lift their value as it sought to raise management awareness of capital costs and stock prices.

As of Nov. 13, US$1 was equivalent to ￥151.59.