LONDON (Kyodo) Sumitomo Mitsui Financial Group Inc. climbed seven places in terms of capital in the global bank listings to join Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc. in the world’s top 10, according to recently published figures.
The annual Top 1,000 World Banks list, which appears in the July issue of the Financial Times’ monthly affiliate The Banker, shows Mitsubishi UFJ Financial Group rising two places to fifth, Sumitomo Mitsui Financial Group in its new record eighth place, and Mizuho Financial Group slipping one place to ninth.
However, despite the steady progress of Japanese banks, the report points out they are “still nowhere near as profitable as competitors,” citing a combined return on assets of only 0.68 percent compared with equivalent examples of 1.96 percent in the U.S. and 2.84 percent in Latin America.
And while Mitsubishi UFJ Financial Group saw a healthy rise in profits on average capital by almost 10 percentage points — from 16.1 percent in 2005 to 25.5 percent in 2006 — following last year’s merger, it is described as being a long way from competing with No. 1 ranked Citigroup at 38.9 percent.
The amalgamation of two of the former top five Japanese banks — Mitsubishi Tokyo Financial Group Inc. and UFJ Holdings Inc. — was praised by the publication, however, for driving up pretax profits by 129 percent and growing the combination of 2005 Tier 1 capital, $39.9 billion and $21.5 billion from Mitsubishi and UFJ, respectively, by $2.4 billion.
The resulting “titan” bank means that Mitsubishi UFJ Financial Group is more than a third bigger than its nearest domestic rival, Sumitomo Mitsui Financial Group, which itself overtook Mizuho Financial Group with an “impressive” 42.4 percent increase in its Tier 1 capital.
In the global picture, while movements in the dollar-yen exchange rate may account for seven of Japan’s top 25 banks having less Tier 1 capital than in 2005, the report states that the fact that 12 Japanese banks have gone down in the world ranking is a “more revealing measure of the greater growth and profitability of banks outside of Japan.”
Nevertheless, the list does reveal that one key reason for the global banking scene being in a “positive and more balanced position” is based on a return of both Japanese and German banks to reporting less losses and being “back in the black.”
Nevertheless, analysts suggest that Japanese banks “still have a long way to go to even match global averages” and to reduce the country’s cost-income ratio, and move away from Japan’s unfortunate status of being the overall “worst performer” in terms of efficiency with the highest ratio at 71.43 percent.
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