It’s early days, but Japan’s biggest banks are broadly on course to meet their modest profit goals this fiscal year after bad-loan costs remained within their expectations in the first quarter.
Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. all saw quarterly profit decline after increasing provisions for soured debts during Japan’s pandemic-fuelled recession. Their net income totalled $3.7 billion in the three months ended June 30, representing 31% of the banks’ combined full-year target.
The lenders’ credit costs jumped to 299 billion yen in the quarter — about 27% of their combined forecast for full-year outlays. Yet it remains unclear whether they can keep impairments in check throughout the year, as a recent surge in coronavirus cases puts a renewed strain on the Japanese economy.
MUFG said in May that its annual forecasts are based on an assumption that the economy will gradually pick up from the current quarter as the pandemic subsides. Tokyo has seen a record number of new infections in recent days, although the government is reluctant to call for a return to restrictions on commercial activities.
The pandemic is “more than just a single-year event, so though I’m pretty confident this year’s credit costs will be more or less as guided, the question is about the outlook for 2021,” said Michael Makdad, an analyst at Morningstar Inc. in Tokyo.
Low bad-loan costs had been among the few bright areas of Japanese banks’ earnings in recent years, particularly as negative interest rates squeezed lending income at home. Now rates are falling around the world as central banks ease monetary policy, undermining the lenders’ strategies of looking abroad for higher-yielding assets.
The three banks are expecting credit costs to almost double to 1.1 trillion yen in the year ending March, the highest aggregate amount in 11 years. Net income will total 1.3 trillion yen, the lowest over the same period, according to forecasts given by the lenders in May.