Mizuho profit rises as banks get little respite from BOJ

Bloomberg

Mizuho Financial Group Inc.’s first-quarter profit rose, as gains from fee businesses and sales of its shareholdings helped the Japanese lender offset the effects of the central bank’s continuing monetary stimulus program.
Net income climbed 36 percent to $1.4 billion in the three months ending June 30 from a year earlier, the Tokyo-based bank said in a statement.
Shares of Mizuho and its peers fell earlier after the Bank of Japan said it will keep interest rates very low for an “extended period of time” to achieve its inflation target.
The statement disappointed investors who had been looking for monetary policy adjustments that might have helped to ease the pressure on banks.
At a policy meeting on Tuesday, the central bank did say it will allow larger movements in long-term interest rates, a tweak that may do little to alleviate pressure on lending
profitability. BOJ Governor Haruhiko Kuroda said the central bank doesn’t conduct policy to improve lenders’ profits.
The introduction of so-called forward guidance “means the harsh environment and painful situation is going to continue,” said Nana Otsuki, chief analyst at Monex Inc. in Tokyo.
“Unless short-term rates rise, it will absolutely not improve profit for banks.”
The BOJ decided to apply negative interest rates on fewer bank reserves, which represents a “slight consideration” of lenders’ plight, Otsuki said.
Bond and securities trading profit jumped 8.4 percent Fees and commissions rose 8.8 percent Gains on sales of stock holdings increased 29 percent
Japanese Bankers Association Chairman Koji Fujiwara said he was concerned that the introduction of forward guidance will prolong banks’ “severe situation.” Fujiwara, who is also chief executive officer of Mizuho’s main banking unit, said via a spokeswoman that the central bank’s decision shows it’s taking the side-effects of its policy into account.
Mizuho, the second of Japan’s three so-called megabanks to report earnings, posted a 1.4 percent increase in lending income in the quarter. Lending income has fallen in each of the past three fiscal years.
Despite the difficult outlook, Mizuho joined Sumitomo Mitsui Financial Group Inc. in posting profit that put it on an early course toward its reaching full-year forecasts. Net income for the quarter makes up 28 percent of Mizuho’s 570 billion yen full-year target. Both banks are predicting lower earnings this year, along with larger competitor Mitsubishi UFJ Financial Group Inc.
Consolidated net business profit, an indicator of the bank’s core earnings, rose 35 percent to 113.6 billion yen. Improved performance of its businesses serving clients in Japan and overseas contributed to the result, Mizuho said.
One positive effect of low rates for banks is that they make it easier for borrowers to repay debts. Mizuho clawed back 22.5 billion yen in reserves set aside for soured credit last quarter.