Japan megabank loan margins dive to barely 1%

Tokyo

IT'S never been tougher for Japanese banks to make money from lending and the squeeze may worsen as traders bet on years of negative benchmark interest rates.

Profit margins on loans at Mitsubishi UFJ Financial Group Inc and its two largest competitors shrank to a record-low one per cent on average in the quarter started April 1, for which they reported a 28 per cent drop in combined net income.

The swaps market points to the overnight rate staying below zero for at least the next three years. The Bank of Japan will stick to its policy in September, 28 of 33 economists surveyed by Bloomberg predict.

"Competition isn't easing - it's only getting stronger, so spreads will continue to tighten," said Masahiko Sato, a Tokyo-based bank analyst at SMBC Nikko Securities Inc. "Naturally, new low rates will come o…