Mizuho Financial Group Inc. led the nation’s three biggest banks in forecasting a drop in earnings for this year as loan growth loses momentum and returns from stock investments wane.
Japan’s third-largest lender by market value said net income may fall 20 percent from a record to ¥550 billion in the year ending next March.
Mitsubishi UFJ Financial Group Inc. projected a 3.5 percent decrease to ¥950 billion and Sumitomo Mitsui Financial Group Inc. forecast a 19 percent drop to ¥680 billion, statements showed Wednesday.
Shares of the banks fell as the results underscored their challenge to boost lending profit after monetary easing to end deflation drags down interest rates, squeezing margins. An equity rally that boosted the value of lenders’ stock holdings last year has stalled, with the Nikkei 225 stock average slumping more than 12 percent in 2014 from a six-year high.
“Lending income is unlikely to increase much,” said Chikako Horiuchi, a Hong Kong-based director of financial institutions at Fitch Ratings Ltd. “Margin pressure is likely to persist given the interest-rate environment as Japanese companies remain cash-rich and competition over new lending is intense.”
Mizuho’s forecast fell short of the ¥552.2 billion average estimate of 17 analysts in a survey. The projection by Sumitomo Mitsui, the nation’s second-biggest bank by market value, trailed the ¥685 billion predicted by analysts. In contrast, Mitsubishi UFJ’s target exceeded analysts’ ¥896.6 billion estimate.
Mizuho’s net income climbed 23 percent to ¥688.4 billion in the year ended March, the highest since it was created in a merger in 2002, according to its statement. Net interest income, or revenue from lending minus payments on deposits, rose 3 percent. Income from fees and commissions gained 11 percent, while profit from trading securities including government bonds dropped 61 percent.
Net income at Sumitomo Mitsui rose 5.2 percent to ¥835.4 billion, also a record, fueled in part by an increase in fees and commissions, the bank reported. President Koichi Miyata told reporters this week that gains from equity-related investments and fewer provisions for bad debts, which also drove profit growth, won’t be sustainable.
Mitsubishi UFJ’s profit climbed 16 percent to ¥984.8 billion last fiscal year, led by stock-related investments and a reversal of credit costs, Japan’s biggest bank said in its statement.
Investors flocked to Japanese stocks in 2013 as Prime Minister Shinzo Abe’s efforts to revive the economy and spark inflation weakened the yen, boosting exporters’ earnings. The consumption tax hike on April 1 and skepticism about the pace of Abe’s repeatedly promised deregulation efforts has dampened enthusiasm for equities this year as wages remain stagnant and prices rise.
While loans at the biggest banks have risen in the 17 months that Abe has been in office, the pace of growth is now declining. Lending gained 1.1 percent in April from a year earlier, the least since February 2013, Bank of Japan data show.
Lending profit has been hurt by the BOJ’s decision in April 2013 to buy about ¥7 trillion of Japanese government bonds a month, which has crimped rates. Net interest margins for the 87 lenders in the Topix Banks Index average 1.25 percent, the least in Asia, according to data compiled by Bloomberg.
Mizuho Chief Executive Officer Yasuhiro Sato said he expects credit to keep growing this year, while net interest margins probably won’t improve.
“Loan volume is likely to increase, but spreads won’t widen,” Sato said at a news briefing Wednesday. “Overall, it’s a slight plus.”
Weak loan profitability has prompted Japan’s biggest banks to look abroad for higher yields. Mitsubishi UFJ President Nobuyuki Hirano on Wednesday repeated a goal of becoming one of the top 10 banks in the U.S. by 2016.
“Outside of Japan, we will focus on the two major markets: the U.S. and Asia,” Hirano told reporters in Tokyo.
Mitsubishi UFJ and Sumitomo Mitsui are weighing whether to bid for Bank of New York Mellon Corp.’s corporate trust arm, sources said this month. The unit could fetch at least $2.5 billion, a source familiar with the situation said last month.
Mitsubishi UFJ purchased Bank of Ayudhya in Thailand for about $5 billion in December, its biggest acquisition in Asia, and Sumitomo Mitsui agreed to buy 40 percent of Indonesia’s PT Bank Tabungan Pensiunan Nasional for about $1.5 billion last May.