Japanese megabanks see profit rise, but capital remains a weakness

Overseas expansion is another risk, as it could raise credit costs, warned Fitch.

Japanese megabanks’ profitability is likely to improve thanks to gradual domestic rate rises and steady credit growth, according to Fitch Ratings.

However, the three banks' earnings and capitalisation will remain their weaknesses, the ratings agency said in a commentary on 19 November 2025.

Mitsubishi UFJ Financial Group (MUFG), Sumitomo Mitsui Banking Corporation (SMBC), and Mizuho Financial Group have sound franchises and diversified business models that are expected to support earnings momentum, S&P said. 

Modest net interest margin (NIM) growth, fee growth, stable credit costs, and disciplined expenses will also help lift up the megabanks’ earnings.

The gradual rise of domestic interest rates and well-controlled costs for deposits had been expected to enable local banks to seek higher interest income, S&P Global Ratings said in a report published in its mid-year outlook report.

Continuing loan demand from corporates is also helping Japanese banks further restore their profitability, Kensuke Sugihara, primary credit analyst for S&P, wrote in the outlook.

Meanwhile, overseas expansion, especially to higher-risk markets, could raise the banks’ credit costs and pressure their capital, Fitch warned.

Capitalisation is adequate but weakening as risk-weighted assets rise under Basel III. The megabanks’ common equity tier 1 (CET1) ratios are expected to trend toward target levels.

The three megabanks have increased their holdings of foreign bonds, including US Treasury, over the past several years, in a shift away from yen bonds with rising yields, S&P Global Market Intelligence said.