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Japan's big banks forecast record profits, signal new optimism as domestic rates normalize




TOKYO, May 16 ------ Japan's three biggest banks forecast record income in the coming year, signaling increased optimism about an economy that has only just exited from years of negative interest rates. 

  

The results from Mitsubishi UFJ Financial Group, Mizuho Financial Group and Sumitomo Mitsui Financial Group also show how Japanese banks are benefiting from higher interest rates in overseas markets, such as the United States, as well as a weaker yen, which inflates profits when earnings from abroad are brought home. For years Japan's big banks have been squeezed by the central bank's massive monetary stimulus, including negative interest rates. The Bank of Japan in March raised interest rates for the first time in more than a decade and a half, heightening expectations that banks will be able to make more money from lending. "We are entering a world with interest rates, which is a plus for us," MUFG's group chief executive, Hironori Kamezawa, told reporters. 

  

For the current year, Mitsubishi UFJ expects a net profit of ¥1.5 trillion (US$9.6 billion), a slight increase over the year just ended which saw profit jump by a third to a record. He said the full-year results, which the banks focus on rather than quarterly numbers, were "extremely strong". Likewise, second-ranked SMFG forecast a record full-year net profit of ¥1.06 trillion - the first time it will exceed the ¥1 trillion mark - and third-ranked Mizuho a record ¥750 billion. Both of those forecasts represent a 10 per cent increase on the year just ended. 

  

BIG QUESTION 

The question now is how much banks can benefit from improving demand for deals and higher interest rates to come at home. One telltale sign may be in the mindset of Japanese businesses and households, where years of deflation forced people and companies to hoard cash. "We are extremely positive on the Japanese economy," SMFG CEO Toru Nakashima told reporters. "The mindset of Japanese corporate managers is much more optimistic than in the past," he said, though he added that economic benefits have yet to trickle down to the average citizen. Investors, for one, appear optimistic on the outlook for banks. The Tokyo market's index of bank stocks is up 61 per cent over the last year, far outstripping the TOPIX index, the broadest measure of Tokyo stock performance, which has gained 29 per cent. 

  

Both Mitsubishi UFJ and SMFG said they would each spend up to ¥100 billion buying back and cancelling shares. SMFG said it would also carry out a 3-for-1 stock split for shareholders as of Sep 30. For the fourth quarter, Mitsubishi UFJ reported a 75 per cent decline in net profit to ¥193 billion (US$1.2 billion) from the same period a year ago when profits surged due to the sale of a subsidiary. SMFG's profit grew more than four times to ¥170 billion. Both banks handily beat expectations. Mizuho, meanwhile, reported net profit tripled to ¥36.7 billion. That number too came in ahead of estimates. 

  

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