TOKYO — Japan’s megabanks expect a double-digit profit decline for the current fiscal year, after reporting a jump in asset writedowns and loan loss provisions for the 12 months through March.
Mitsubishi UFJ Financial Group, the nation’s largest banking group, reported a 40% drop in net profit to 528 billion yen for the past fiscal year. The bank’s bottom line was hit by 360 billion yen in writedowns on the value of its affiliates in Southeast Asia — Bank of Ayudhya in Thailand, Bank Danamon in Indonesia and Security Bank in the Philippines — amid a Sino-U.S. trade war and the coronavirus downturn.
Sumitomo Mitsui Financial Group reported a 3% drop in net profit to 703 billion yen. SMFG has major exposure to the coronavirus-hit airline industry; it is the world’s fifth largest aircraft leasing company. SMFG is also exposed to Indonesia’s slowing economy through its ownership of bank BTPN. The Japanese group has made Indonesia its main operating base in Southeast Asia and has been expanding its business there aggressively.
Mizuho Financial Group, Japan’s third largest banking group, posted a profit of 448 billion yen, up from 96.5 billion yen in fiscal 2018 as it finally put its information system problems behind it. But the coast is not clear. The bank is the main creditor for SoftBank Group, a technology investment company that has been hit hard by the recent global stock market setback. SoftBank Group is expected to report an annual loss of 900 billion yen for the past year.
The current year is expected to be even more challenging. In Japan, the economy has been throttled by a national state of emergency during the first two months of the fiscal year. Sales of retail goods from apparel and cosmetics to autos and appliances are tumbling.
Economists are expecting the Japanese economy to contract 5.8% in April-June from the preceding quarter, or at an annualized pace of 21%, according to a survey by the Japan Center for Economic Research, as the global economy is expected to contract 3% this year, according to the International Monetary Fund.
Bad loans are expected to increase as more businesses fall into trouble. The number of corporate bankruptcies in April increased 16% from a year before to 758. They left total liabilities of 161 billion yen, up 54%, according to research company Teikoku Databank.
Weak global growth also makes it more difficult for Japanese lenders to find alternative sources of revenue outside their own country.
The megabanks earn only a tiny spread on the loans they make in Japan due to ultra-low interest rates. The difference between the average yield on loans and the average cost of funding has been narrowing for years. For Japan’s megabanks, the spread stands at 0.7% to 0.8%.
Among the three, SMFG and Mizuho have been particularly aggressive in pushing overseas loans, having moved away from traditional businesses like extending mortgages and corporate loans, and into sectors such as leasing, investment banking and overseas business.