Japan’s biggest banks see challenging year ahead as profit drivers dwindle

Bloomberg

Japan’s biggest banks have warned investors of a tough year ahead. The nation’s three megabanks have been relying on the healthy status of borrowers and sales of so-called cross-shareholdings for earnings as rock-bottom interest rates crimp lending profitability. Results on Wednesday showed they are losing those benefits at a time when the economy is weakening, trade tensions are escalating and the Bank of Japan’s extraordinary monetary easing looks set to stay.
“The business environment is very uncertain and tougher than last year,” Sumitomo Mitsui Financial Group Inc.
President Jun Ohta said at a news briefing in Tokyo, dismissing the notion that his bank’s profit target is conservative.
Sumitomo Mitsui, Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc. all posted net income projections that missed analysts’ estimates, as rising bad-loan costs and diminishing gains from sales of stock holdings put a dampener on earnings prospects in the year ending March 2020.
While both Mizuho and MUFG are expecting profit to increase this year, to 470 billion yen ($4.3 billion) and 900 billion yen respectively, that’s only after they booked large writedowns that hurt results in the previous period. Sumitomo Mitsui sees net income slipping about 4 percent to 700 billion yen.
Shares of Mizuho and MUFG fell at the open in Tokyo, while Sumitomo Mitsui was little changed after announcing a stock buyback.
“Signs of an economic slowdown have been emerging in Japan and overseas,” Mizuho Chief Executive Officer Tatsufumi Sakai told reporters.