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Banking & Finance

Japan's top banks suffer 1st combined income drop in three years

Lower profitability hits bottom lines at Mitsubishi UFJ, Sumitomo and Mizuho

Squeezed by thin interest rate spreads, Japan's megabanks plan to cut more costs and expand their use of information technology.

TOKYO -- The combined consolidated net profit at Japan's top-three banking groups has likely decreased by about 10% to slightly above 1.3 trillion yen ($11.9 billion) for the fiscal first half through September, the first such year on year decline in three years.

During the period, lending by Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group remained solid, but the megabanks reeled from narrow net interest rate spreads amid Japan's ultra low interest rate environment.

The banks are scheduled to announce their respective results for the fiscal first half on Nov. 14 and 15. They largely maintained the balance of corporate lending, their mainstay business, but net interest spreads, the difference between the lending and deposit rates, remained razor thin. Profit from corporate lending in Japan failed to increase, and sales of financial products like investment trusts for individuals struggled.

Consolidated net income for Mitsubishi UFJ came to about 600 billion yen, down some 8% from the year-earlier period. Morgan Stanley, accounted for in Mitsubishi UFJ's accounts using the equity method, performed well but not enough to compensate for the slumping Japanese operation.

Consolidated net income came to 430 billion yen, down a little less than 10%, for Sumitomo Mitsui, while the figure for Mizuho dropped about 17% to some 300 billion yen. Both banks suffered from drooping fee revenues garnered by investment trusts and other retail products.

For the year-earlier half, all three banks had increased revenues. Earnings recoveries at major corporate borrowers like Sharp and Toshiba allowed the banks to release their loan-loss reserves, which pushed up their bottom lines.

This year the banks do not have the leeway to take one-off support measures. Instead, they will cut more costs and expand their use of information technology.

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