(Bloomberg) -- Japan’s biggest banks raised their annual profit forecasts to fresh records and unveiled plans to buy back shares, reaping the rewards from the nation’s rising interest rates and buoyant stock market.
Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. now project a combined ¥3.7 trillion ($24 billion) in profit this fiscal year after first-half results were boosted by lending income and gains from sales of shareholdings.
The results underscore how the Tokyo-based lenders are benefiting from the Bank of Japan’s interest-rate increases following years of ultra-easy monetary policy. They’re also willing to share more of their swelling profits with investors and stepping up their reduction of so-called strategic shareholdings of other firms.
In its first buyback since 2008, Mizuho plans to repurchase as much as ¥100 billion in shares through mid-March and cancel them. Chief Executive Officer Masahiro Kihara said the bank’s capital has finally returned to the point where it can boost shareholder returns.
“We used to take a balance between capital buildup and growth investment,” Kihara said at a briefing in Tokyo on Thursday. “Now, we take a balance between shareholder return and growth investment. We’re in a new dimension.”
Sumitomo Mitsui is planning ¥150 billion in buybacks. The lender decided to do the share buyback as it currently isn’t expecting to undertake large-scale M&A this fiscal year, CEO Toru Nakashima said at a briefing.
MUFG, meanwhile, plans to buy back up to ¥300 billion of shares through March 31. “Our return-on-equity level is not enough,” MUFG CEO Hironori Kamezawa said, when asked what Japan’s biggest bank needs to do more. “We need to boost it further, otherwise we cannot compete with global top-tier” banks.
Key Figures
- MUFG, Japan’s biggest bank, now sees net income reaching ¥1.75 trillion in the year ending March 31, up from its previous forecast of ¥1.5 trillion. First-half profit jumped 36% to ¥1.3 trillion.
- Sumitomo Mitsui revised its profit goal to ¥1.16 trillion from ¥1.06 trillion. Net income climbed 38% to ¥725.2 billion in the first half.
- Mizuho raised its profit forecast to ¥820 billion from ¥750 billion. Net income rose 36% in the first half to ¥566.1 billion.
After being squeezed by rock-bottom rates for more than a decade, the banks’ domestic lending income is growing because they can charge relatively more on loans than they pay for deposits. Moreover, a weaker yen is boosting the value of earnings generated abroad, where the lenders have been expanding for years.
“The Japanese economy has started to move toward growth and interest rates have entered a rising phase,” Sumitomo Mitsui CEO Nakashima said. “We are getting tailwinds.”
Unwinding Cross-Shareholdings
Japanese banks are also benefiting from the country’s renewed push to unwind cross-shareholdings. The lenders own billions of dollars worth of corporate clients’ shares, and divesting such holdings will generate additional profits, particularly at a time when Japanese stocks are trading near a record high.
MUFG and Sumitomo Mitsui unveiled plans to increase the amount of their disposals. MUFG is doubling its equity holdings reduction target to ¥700 billion under its mid-term business plan. Sumitomo Mitsui set a new reduction plan of ¥600 billion through March 2029 after it rapidly achieved its initial plan ahead of time.
Mizuho CEO Kihara said the next administration of US President-elect Donald Trump will be supportive for businesses and positive for merger deals.
Still, both Kihara and Kamezawa said Trump’s policies may also be inflationary, and Nakashima warned of the risk of a trade war.
Japanese bank stocks rose after Trump’s election victory last week on speculation that his policies may fuel inflation, resulting in higher interest rates.
Shares of Mizuho climbed 1.3% on Thursday before the results, taking this year’s gain to 46%. MUFG is up 48% and Sumitomo Mitsui has jumped almost 58% this year.
(Updates with additional comments from MUFG, SMFG CEOs in sixth and seventh paragraphs, details of strategic shareholding reductions in 12th paragraph.)
©2024 Bloomberg L.P.