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According to Market Intelligence, December 2022


Sumitomo Mitsui raises full-year profit outlook on growing overseas loans

Sumitomo Mitsui Financial Group Inc., Japan's second-biggest bank by assets, revised its full-year net profit estimate upward as the dollar's strength against the Japanese yen boosted its earnings in the fiscal first half of the year ending in March 2023.

Sumitomo Mitsui now expects a net profit of ¥770 billion for the 12 months through March, up from the earlier projected ¥730 billion. This comes after it reported on Nov. 14 a 15.2% year-over-year increase in net profit to ¥525.4 billion for the April-to-September period.

Earnings fell at the other two Japanese megabanks, which also reported Nov. 14.

Mitsubishi UFJ Financial Group Inc. reported a 70.4% plunge in net profit from a year earlier to ¥231 billion for the same six months. The bank was hit by a one-time loss related to the sale of its U.S. unit, MUFG Union Bank. The lender, however, kept its full-year net profit projection at ¥1 trillion.

Meanwhile, Mizuho Financial Group Inc.'s net profit declined 13.4% year over year to ¥333.9 billion for the fiscal first half, but this still kept the lender on a path to achieve a net profit target of ¥540 billion for the fiscal full year.

Stronger dollar

While the three Japanese megabanks have gained on their overseas lending due to the dollar's strength against the yen this year, they have faced swelling unrealized losses from their foreign bond investments, mainly in U.S. Treasurys. The U.S. dollar is still up nearly 21% against the yen since the start of the year, despite a strong bounce back in the Japanese currency in recent weeks.

"We secured the dollar [from lending]. ... But the capital markets have slumped," Mizuho CEO Masahiro Kihara said during a post-earnings press conference Nov. 14.

The aggregate unrealized losses at the three Japanese megabanks from their overseas bond investments climbed to ¥3.97 trillion as of the end of September, up from ¥2.656 trillion three months prior, according to calculations by S&P Global Market Intelligence.

Kihara, along with executives at the two other banks, agreed that the outlook for markets remains uncertain.

The three megabanks cashed in on the higher interest rates that supported their lending margins. Outstanding overseas loans grew 5.6% to $257.7 billion at Mizuho in the first half of the bank's fiscal year that started April 1. Sumitomo Mitsui reported a 24.2% gain in loans over the period to ¥36.9 trillion and MUFG reported a 20.5% increase to ¥51.8 trillion.

Still, Sumitomo Mitsui CEO Jun Ohta flagged the risks to the bank's overseas loans if economic conditions worsen, saying significant growth in overseas lending is not expected in the event of a recession.

As of Nov. 11, US$1 was equivalent to 139.18 yen.