April 1, 2014 3:39 am JST

Japan's megabanks headed for record profits in fiscal 2013

TOKYO -- The stock market rally and improving corporate earnings likely pushed up total fiscal 2013 net profits at the three Japanese megabanks by 10%, within range of the 2.51 trillion yen record set in fiscal 2005.

     This will mark the second straight fiscal year that the banks log profits exceeding 2 trillion yen ($19.2 billion).

     The strength of the equities market was one factor pushing up earnings. The Nikkei Stock Average has soared nearly 20% from a year ago. The three megabanks have about 3.8 trillion yen in paper gains on their stockholdings, up 1.3 trillion yen on the year, according to Daiwa Securities.

     The banks significantly reduced write-offs from the 240 billion yen of fiscal 2012. Capital gains from exchange-traded funds also contributed.

     "High stock prices pushed up profits by around 410 billion yen," Daiwa's Akira Takai says.

     Borrowers' stronger earnings allowed the banks to leave some of their default reserves unused. The three megabanks held a total of 3.5 trillion yen in nonperforming loans at the end of December, down 570 billion yen from the end of fiscal 2012. Bad loans account for just 1.2% to 1.4% of each bank's total credit exposure.

     All three banks will likely beat earnings forecasts.

     Mitsubishi UFJ Financial Group Inc. may surpass its fiscal 2012 net profit of 852.6 billion yen by 10%, thanks to such factors as strong showings by affiliated brokerages.

     Sumitomo Mitsui Financial Group Inc. will likely set a new record this fiscal year, topping the fiscal 2012 figure of 794 billion yen, owing in part to stock investment trusts. Mizuho Financial Group Inc. is expected to beat its 649.9 billion yen record set in fiscal 2005.

     There are signs of a shift in the banks' earnings structures, which had been shored up by capital gains from Japanese government bonds.

     Returns on JGBs have shrunk since last April, when the Bank of Japan launched its monetary easing program. In fiscal 2012, the three megabanks earned 650 billion yen from the trading of JGBs, accounting for 30% of profits. The figure came to only 180 billion yen for the April-December period.

     And domestic borrowing is gradually recovering. Lending at the end of February was up 2.8% from a year earlier, according to the Japanese Bankers Association. Demand for funds is spreading to some small and midsize businesses as well.