,Japan

Profits of Japan's megabanks to rise in next 12-18 months

All three banks’ profits jumped over 60% for the first six months of the current fiscal year.

The profitability of Japan’s three megabanks is expected to further increase over the next 12 to 18 months on the back of lower credit costs, according to a report by Moody’s Japan K.K.

The net income of Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, and Mizuho Financial Group jumped 95%, 68.8%, and 78.9%, respectively over the first six months of the fiscal year ending March 2022 compared to the previous fiscal year. Credit costs declined after a spike due to the coronavirus pandemic. 

Whilst the nonperforming loan (NPL) ratios of all three banks remained almost unchanged from the end of March 2021, these are well below the 10-year average of 1.4%.

"We expect the asset risks of Japan's three megabanks to remain low in fiscal 2021, given that the global economy will recover in 2021-22, and the banks' conservative approach," says Tetsuya Yamamoto, a Moody's Vice President and Senior Credit Officer.

Banks' cost-cutting efforts through digitalization will start to translate into declines in base operating expenses, Yamamoto added. 

However, domestic net interest margins will remain under pressure because of excess liquidity and fierce competition among banks.

Notably, whilst Mizuho's credit risk is one of the lowest among rated banks in Japan, Mizuho has relatively high operational risks, as highlighted by a series of system glitches in 2021, Yamamoto said.

Overall, Moody's expects all three banks' capital ratios to be stable as they steadily accumulate retained earnings, whilst controlling growth in risk-weighted assets (RWAs).

“Loan demand increased sharply because of the pandemic in the first half of fiscal 2020 but it has eased. As such, RWA growth at the three banks has normalized and will not change much from their current levels,” Moody’s wrote.

At the same time, banks' liquidity will remain strong, backed by large amounts of cash and highly liquid securities holdings, the ratings agency added.

Join Asian Banking & Finance community
Since you're here...

...there are many ways you can work with us to advertise your company and connect to your customers. Our team can help you dight and create an advertising campaign, in print and digital, on this website and in print magazine.

We can also organize a real life or digital event for you and find thought leader speakers as well as industry leaders, who could be your potential partners, to join the event. We also run some awards programmes which give you an opportunity to be recognized for your achievements during the year and you can join this as a participant or a sponsor.

Let us help you drive your business forward with a good partnership!

Banks should have enough buffers and find climate transition risks manageable.
The products are now available at Eccellente by HAO Market in Singapore.
Institutional clients may accelerate time-to-market financial applications.
This was thanks to a rise in loans made to the service sector during the period.
Discussions between the two banks are at the preliminary stage.
But it reported weaker quarterly performance, largely due to its $309.8m Q3 expense.
Uncertainty over Omicron's impact may drive this slowdown.
Only 2 in 10 Singapore micro-multinationals think banks offer value for money.
The Internet boom has pushed 9 out of 10 digital merchants to accept digital payments.
It’s not as urgent as other markets with credit under-penetration, says TMRW Digital Group CCO.
The move is part of the BSP’s Digital Payments Transformation Roadmap.
Internet economy in SEA has propelled digital payments further.
The market is expected to top $83.2b in four years’ time.
The 3.26% interest rate average is its highest since November 2018.