All but one of the nation’s seven largest banking groups posted net profits in the first half through September despite shouldering 1.1 trillion yen in credit costs for bad loans, according to earnings reports released Monday.
The exception was Mitsubishi Tokyo Financial Group, which foundered in the red.
The country’s major lenders were all deep in deficit for the year ending March 31. The size of banks’ outstanding bad loans fell slightly from a record 26 trillion yen in March but remained high at 24 trillion yen.
Newly arising nonperforming loans continued to plague the lenders, which are bracing against rising bankruptcies and a series of possible banking regulations that could turn their fledgling gains for April-September into losses.
Under consideration are measures that may require banks to set aside more reserves against potential losses from troubled borrowers. If some of the proposed methods, based on U.S.-style loan assessments, are adopted, banks’ credit costs could soar.
“Depending on the details of the policies the government has in mind, we could fall into the red (in the full year),” said Yasuhisa Katsuta, president of Resona Holdings Inc., the holding company that unites Daiwa Bank and Asahi Bank with two regional banks in the Kansai area.
The banking group wrote off 160.6 billion yen in bad loans, barely within the 166.9 billion yen it earned through its core operations. It was left with a 13.5 billion yen consolidated net profit.
Meanwhile, MTFG booked a 188 billion yen consolidated loss for the interim period, against a 96.8 billion yen loss a year earlier. The group attributed the loss to a stricter assessment of bad loans.
Shigemitsu Miki, president of MTFG, said the company was prepared for the worst, should the government adopt discount cash flow calculations. Among the four megabank groups, MTFG has the lowest level of outstanding nonperforming loans at 3.6 trillion yen.
In May, the banks said they hoped to keep credit costs within operating profits with the help of a cyclical recovery. They succeeded in the first half, with the 1.1 trillion yen in credit costs falling snugly within 2 trillion yen in operating profits.
Sumitomo Mitsui Banking Corp., however, is preparing for losses to come. SMBC announced it would write off 700 billion yen for the full fiscal year, up from 500 billion yen, against the potential adoption of discount cash flow methods.
Hit by bad loans and share price falls, the group saw its 576.6 billion yen in operating profits — the highest among the seven banks — dwindle to a net profit of 55.1 billion yen.
“It is impossible to forecast how much we should set aside for these changes, when we don’t even know what the changes are going to be,” said Yoshifumi Nishikawa, president of SMBC. “We find it impossible to make any move with things so uncertain.”
UFJ Holdings Inc. gained 72.5 billion yen in net group profit, up from a loss of 67.4 billion yen a year earlier.
Mizuho, which groups Mizuho Bank and Mizuho Corporate Bank, posted a net profit of 39.03 billion yen, a sharp reversal from a loss of 264.64 billion yen a year earlier.
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