Japan top banks' H1 profits hit by Bank of Japan's negative rate policy

[TOKYO] Japan's top banks, already wrestling with shrinking loan profitability, posted falls in first-half profit as they struggled in the ultra-low interest rate environment exacerbated by the Bank of Japan's aggressive negative interest rate policy.

Japanese lenders' overseas expansion in recent years alleviated some of the damage from the central bank's negative interest rate policy, but the growth was still not strong enough to reverse the overall trend of squeezed loan margins.

Mitsubishi UFJ Financial Group, Japan's largest lender by assets, saw an 18 percent fall in net profit to 490.5 billion yen (S$6.5 billion) for the April-Sept period, the first such fall in four years.

The results beat an average estimate of 436.2 billion yen in a poll of two analysts.

MUFG said its revenues were pushed down by the negative interest rate policy at home, weak sales of investment products, and a higher yen against the dollar which eroded the value of profits earned overseas.

"We expect the tough business conditions to continue in the second half," MUFG Chief Executive Officer Nobuyuki Hirano told a news conference.

MUFG's first-half net interest income, or profit from lending, fell by 100 billion yen to 975 billion yen.

It also said it would buy up to 1.69 per cent of its stock for as much as 100 billion yen.

Japan's No 2 bank by assets, Mizuho Financial Group, recorded a seven per cent fall in net profit to 358.2 billion yen for the April-Sept period.

Already suffering from years of low loan rates held down by Japan's weak economy, lenders were dealt another blow by the BOJ's decision to introduce negative interest rates in February.

"We don't expect the BOJ to terminate the negative interest rate policy immediately even when the economy starts making a gradual recovery," Mizuho CEO Yasuhiro Sato told a news conference.

The banks are trying to offset diminishing returns from loans with fee businesses, such as selling mutual funds to retail customers and providing advisory services to corporate clients. But these businesses have yet to become a driver of profit.

Japan's No 3 lender, Sumitomo Mitsui Financial Group, reported a 7.5 per cent fall in first-half profit to 359.2 billion yen for the April-Sept period, joining its rivals hurt by low interest rates at home and abroad.

SMFG said its overseas outstanding loans grew by US$9 billion year on year to US$201 billion as of September, led by an increase in the Americas. But loans in Asia outside Japan shrank in the first half.

"At this moment, we are a bit cautious in credit risk taking in Asia," SMFG President Koichi Miyata told a news conference.

All three banks kept their full-year net profit forecasts with MUFG at 850 billion yen, Mizuho at 600 billion yen and SMFG at 700 billion yen.

REUTERS