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Japan's top lenders boost shareholder returns after upbeat earnings

[TOKYO] Japan's top banks are stepping up dividend payments after reporting better-than-forecast earnings, responding to calls for bigger shareholder returns.

Japanese companies are under intense investor scrutiny lately to justify how their earnings are utilized, and have been criticised for hoarding too much cash. Prime Minister Shinzo Abe's economic growth initiatives are putting additional pressure, as they try to stimulate money flow among businesses and households through more spending, investment and wage hikes.

The major banks, though, have to walk a fine line between heeding investor calls for returning cash and investing in growing overseas to make up for a weak domestic business. Stricter global bank capital rules also make bank managements wary about returning capital.

Mizuho Financial Group, Japan's second-largest lender by assets, said on Friday it will now pay an annual dividend of 7.5 yen per share for the year ended in March, up from 7 yen it had previously promised.

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The lender reported an annual net profit much better than its own forecast, helped by stock-related gains and smaller bad-loan costs. "We have promised a payout ratio of 30 per cent and we have to deliver it," said Mizuho CEO Yasuhiro Sato at an earnings briefing. The bank's dividend payout ratio, or percentage of profits paid out as dividends, is 29.5 per cent.

Mr Sato said even after meeting the dividend promise, the bank still has cash to spend on investment. "We will actively consider inorganic growth, including overseas M&As," he said.

Mitsubishi UFJ Financial Group Inc (MUFG), Japan’s largest lender by assets, reported a record annual profit for a second year in a row as its aggressive overseas expansion strategy paid off.  

MUFG said on Friday net profit rose 5 per cent to 1.03 trillion yen (US$8.62 billion) for the year ended in March, slightly below an average estimate of 1.05 trillion yen in a poll of 19 analysts by Thomson Reuters.

Earlier this week, No 3 lender Sumitomo Mitsui Financial Group raised its annual dividend to 140 yen per share from 130 yen previously projected after posting a smaller-than-forecast drop in profit.

Japanese companies, sitting on a record 230 trillion yen (US$1.9 trillion) of cash, are being urged by investors and politicians to spend more, with Finance Minister Taro Aso calling cash-hoarding companies "scrooges".

A string of measures has been introduced by regulators to make companies more responsive to investor demands, including a corporate governance code that requires two or more outside directors.

The measures seem to be working. Kengo Nishiyama, research analyst at Nomura, said Japan's listed companies are likely to return a record amount of cash to shareholders for the year ended in March, with dividends and share buybacks totaling 12.8 trillion yen.

Japanese banks have spent tens of billions of dollars on snapping up overseas assets, including MUFG's $5 billion acquisition of a 72 per cent stake in Thailand's Bank of Ayudhya PCL in 2013.

More recently, Mizuho agreed to buy Royal Bank of Scotland Group PLC's US and Canadian loan commitments in a deal worth $3 billion.

And the bets have paid off. MUFG, which has been the most aggressive among Japan's top three banks in expanding overseas due to its ancestry and culture, is expected to report a record annual profit for the second year in a row, despite the ultra-low interest rate environment at home, while its two rivals saw their profits fall.