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Japanese megabanks sound caution despite resilient first-half results

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Japanese megabanks sound caution despite resilient first-half results

Mitsubishi UFJ Financial Group Inc. joined its rival Mizuho Financial Group Inc. in revising its full-year net profit forecast higher, though the Japanese megabanks flagged lingering risks from the coronavirus pandemic.

Helped by gains in overseas operations and cost-cutting efforts, MUFG now expects ¥600 billion in net profit attributable to owners in the year ending March 2021, ¥50 billion higher than its previous target. Mizuho Financial said Nov. 12 it expects its full-year net profit to rise to ¥350 billion, from earlier estimated ¥320 billion. Sumitomo Mitsui Financial Group Inc., however, kept its profit outlook unchanged.

MUFG, which reported Nov. 13 that higher credit costs dragged year-over-year net profit in the six months by 34% to ¥400.83 billion, expects higher revenue at its overseas security subsidiaries, higher foreign-currency deposit balance and accelerating cost reduction to help income.

Cost cutting and other efforts to improve income "more than offset the impact from the coronavirus crisis" in the first half of the year, Hironori Kamezawa, MUFG's president and CEO, said at a post-earnings press conference.

The banks are likely to stay cautious for the rest of the year even as first-half earnings broadly exceeded street expectations as stimulus measures by governments and central banks both at home and abroad cushioned the impact of the coronavirus pandemic. The first-half earnings season has been stronger-than-expected for Japanese firms, causing a rally in local stocks. However, with infections also rising in recent weeks, the risk that the crisis will linger have emerged again.

"We have to watch how the pandemic will keep affecting our business," Kamezawa said as MUFG raised its credit cost estimate for the year to ¥500 billion from previously planned ¥450 billion.

Sumitomo Mitsui kept its full-year net income forecast unchanged at 400 billion and the planned loan loss provision for the year at 450 billion.

"The prospects for our business are uncertain, given the prolonged coronavirus crisis," Jun Ohta, Sumitomo Mitsui's president and CEO, said at a press conference. "I didn't have confidence that we could revise upward our earnings forecast."

That, as the company posted ¥270.13 billion in net income in the fiscal first half, 68% of its planned full-year earnings. Its credit cost for the six months came to ¥200.2 billion, less than half the planned ¥450 billion for the full year.

As of Nov. 12, US$1 was equivalent to ¥105.13.