(Bloomberg) -- Sumitomo Mitsui Financial Group Inc.’s profit increased more than analysts estimated last quarter as the Japanese bank joined its local rivals in benefiting from higher lending income after interest rates rose.
Net income climbed 50% to 371.4 billion yen ($2.5 billion) in the three months ended June 30, the nation’s second-largest lender said Friday. That beat the 287 billion yen average estimate of four analysts, and accounts for 35% of its annual profit projection.
Sumitomo Mitsui is the last of Japan’s biggest banks to announce results, with Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc. also reporting fiscal first-quarter profit that beat estimates and put them on course for record annual earnings.
Shares of Japanese banks and other financial firms tumbled earlier Friday, part of a broader selloff in the country’s equity market in the wake of the central bank’s decision to raise rates earlier this week. Bank stocks have soared this year on expectations that tighter monetary policy will boost lending profitability, and the latest retreat doesn’t derail that notion, according to analysts.
“My impression is that a drop in overall market sentiment is dragging financial stocks lower, not that concerns over the potential worsening of fundamentals have emerged,” said Bloomberg Intelligence analyst Hideyasu Ban.
Rising lending rates bode well for commercial banks, while Japan’s hard-won inflation could prompt citizens to put more of their cash into shares and other investments to defend the value of their assets, benefiting brokerages, he said.
The Bank of Japan raised rates for the second time in 17 years on Wednesday, after scrapping its negative-rate policy in March. Sumitomo Mitsui shares are up 40% this year, even after plunging 11% on Friday as the benchmark Topix Index slid the most since 2016 and entered a correction.
Sumitomo Mitsui’s net interest income jumped 25% in the quarter from a year earlier to 524.2 billion yen. It expects lending income to get a 100 billion yen boost from the March and July rate increases, with 70% of that to come in the current fiscal year.
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The Tokyo-based bank saw stock-related gains double to 82.3 billion yen as it sold strategic holdings in corporate clients. It plans to unveil a new target for offloading such shares, after achieving the current three-year goal of divesting 200 billion yen by Sept. 30.
Sumitomo Mitsui kept its annual net income projection at a record 1.06 trillion yen, versus analysts’ estimate for 1.09 trillion yen.
--With assistance from Takashi Nakamichi.
(Updates with net interest income and stock-sale gains in eighth and ninth paragraphs)
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