Japanese megabanks predict lower profits this year

Says monetary easing made loans less profitable.

Japan’s three biggest banks have forecast an earnings drop this year.
Sumitomo Mitsui Banking Corporation, the second largest bank, said in a statement that its net income will fall 27% to US$5.7 billion in the year ending March.

Japan’s largest bank, Mitsubishi UFJ Financial Group, Inc., expects profit to fall 11% to US$7.4 billion while Mizuho Financial Group, Inc. predicts an 11% drop to US$4.9 billion.

Analysts said falling interest rates on the back of the Bank of Japan’s efforts to end deflation are curbing loan profitability, keeping net interest margins among Japanese lenders the lowest in Asia.

They said the challenge for megabanks this year is how to increase profit from lending at a time when low interest rates squeeze margins. The megabanks will need to take advantage of their brokerage and fee businesses that are benefiting from the market rebound.

Sumitomo Mitsui President Koichi Miyata said he wants his bank to aggressively increase lending as the government’s policies will spur demand from borrowers. SMBC’s lending income grew 4% last year.

Companies and households are borrowing more as the economy recovers from last year’s recession. Bank lending rose 2.1% in April year-on-year, the fastest pace since July 2009, said the BOJ.