Low interest rates still squeezing Japanese banking profits
Overseas operations prop up sagging earnings
TOKYO -- Japan's five leading banking groups reported a third straight year of shrinking aggregate profit Monday, hampered by the central bank's negative interest rate policy, but the strength of their overseas operations helped stave off a worse result.
Combined net profit fell 3% from the previous year to 2.51 trillion yen ($22 billion) for the five groups, which include Japan's three megabanks as well as Resona Holdings and Sumitomo Mitsui Trust Holdings. Only Sumitomo Mitsui Financial Group saw an increase, with net profit bouncing back 9% to 706.5 billion yen from heavy year-earlier losses on consumer finance operations and foreign shareholdings.
"We were able to achieve our target of 700 billion yen through cost reductions," said Takeshi Kunibe, president and CEO of Sumitomo Mitsui Financial Group.
Tough business environment
The Bank of Japan's year-old negative-rate policy cost the five banking groups a combined 184 billion yen or so, and aggregate net profit for the current year is expected to fall another 3% to 2.43 trillion yen as ultralow interest rates continue.
"The business environment is tough," said Yasuhiro Sato, president and CEO of Mizuho Financial Group, which saw its bottom line drop 10% to 603.5 billion yen in the year ended March 31.
The five banking groups' combined net profit from core businesses fell 15% to 2.53 trillion yen. Domestic net interest margins shrank for all the groups except Sumitomo Mitsui, which benefited from high-yield securities, and they dipped into the negative for two banks. Loan-loss provisions for Toshiba also factored into profit declines.
But foreign segments performed well. Net profit at Mitsubishi UFJ Financial Group, whose overseas business generated 40% of profits in customer-facing operations, fell only 2% to 926.4 billion yen. A stronger yen reduced profit by 30 billion yen. Discounting that, "you could call it a marginal rise in profit," said Nobuyuki Hirano, president and CEO of MUFG.
"The first half of the fiscal year was relatively strong, but we suffered from a harsher environment in the second half," Hirano said.
Resona Holdings net profit fell 12% to 161.4 billion yen, while Sumitomo Mitsui Trust Holdings' profit declined 27% to 121.4 billion yen.
The difficult search for yield continues. With few attractive vehicles for customer deposits, cash and cash due from banks totaled roughly 157 trillion yen in March at the three megabanks, up more than 20% from a year earlier.
Each group intends structural reforms to bolster earnings.
Mizuho will reduce its branch count by at least 10-20% over the next three to four years, said Sato. MUFG plans to turn credit card company Mitsubishi UFJ Nicos into a wholly owned subsidiary, and Sumitomo Mitsui Banking Corp. is continuing with digitization efforts at all of its branches.
Reining in card loans
Outstanding card loans -- a type of unsecured credit that lets cardholders borrow several million yen with minimal screenings -- increased roughly 10% on the year to 1.63 trillion yen as of March for Japan's three largest banks. SMBC accounted for 780 billion yen of the total, followed by 440 billion yen at Bank of Tokyo-Mitsubishi UFJ and 410 billion yen at Mizuho Bank.
Each bank will toughen its screening process in response to criticism that card loans lead to overborrowing. BTMU and Mizuho Bank will lower the threshold for loans requiring proof of income from more than 2 million yen to more than 500,000 yen in June. SMBC also will lower its threshold to 500,000 yen-plus. Mizuho Bank also has lowered the upper borrowing limit for its card loans from half of the user's annual income to one-third.