Japan banks book gains from stock holdings, but bleak lending persists

[TOKYO] Mizuho Financial Group and Sumitomo Mitsui Financial Group (SMFG) posted big gains from the sale of holdings in corporate client stocks for the first quarter, but ultra-low interest rates continued to drag on the lenders' results.

Japanese banks typically buy shares of corporate clients in a gesture aimed at cementing ties, but the practice has come under pressure from investors and regulators who want lenders to trim such holdings worth billions of dollars' to reduce their exposure to market swings.

Mizuho, Japan's second-largest lender by assets followed by SMFG, said gains from its sale of stock holdings jumped nearly five-fold to 62.3 billion yen (S$764.69 million) over the April-June quarter, while SMFG's raked in an almost 20-fold increase to 29 billion yen over the period.

Their core lending business, however, remain tepid.

Mizuho's net profit fell 11 per cent as net interest income, or profits from lending and bond coupons, fell to 192.8 billion yen during the period, from 215.6 billion yen a year earlier.

SMFG's net profit rose 31 per cent, helped by the sale of stock holdings. Its net interest income also rose, 11 per cent, but the bank said it was mostly due to gains from stock index fund investment.

Japanese banks have been hit by diminishing returns from loans as the Bank of Japan (BOJ) has been aggressively driving down interest rates, though the monetary easing has not led to a strong growth in borrowing and spending.

And ultra-low interest rates are likely to stay for a while.

Earlier this month, the BOJ once again pushed back the timing for achieving its ambitious inflation target, reinforcing views it will lag well behind other major central banks in scaling back its massive stimulus programme.

Mizuho said its profit for the April-June quarter was also hurt as gains from bond trading at its banking units fell 75 per cent from a year ago to 20 billion yen.

For the full-year through March, both banks reiterated their forecast for a drop in net profit.

Mizuho sees an 8.8 per cent fall to 550 billion yen, in line with an average estimate of 549.33 billion yen from 16 analysts polled by Thomson Reuters.

SMFG expects 630 billion yen, down 10.8 per cent from the previous year and below a consensus estimate of 650.84 billion yen.

Mitsubishi UFJ Financial Group, Japan's largest lender by assets, is scheduled to announce its first quarter results on Tuesday.

Before the results, Mizuho shares ended down 0.05 per cent at 196.4 yen and SMFG up 0.17 per cent at 4,195 yen, compared with a 0.17 per cent fall in benchmark Nikkei 225 average.

REUTERS