Japan's Mizuho, SMFG book combined US$1.3b Russia provisions

TWO of Japan’s largest banks, Mizuho Financial Group and Sumitomo Mitsui Financial Group (SMFG), said on Friday they have set aside a combined US$1.3 billion to cover potential losses from their exposure to Russia.

Mizuho, Japan’s third-largest lender by assets, added US$752 million to its reserves in the January-March quarter to prepare for losses from exposures in Russia, a reversal from early last year, when it freed up loss reserves built up during the pandemic.

As a result, Mizuho’s net profit for the January-March quarter dropped 55.6 per cent from the same period last year to US$403 million, 34 per cent lower than an average profit estimate from three analysts surveyed by Refinitiv.

“For now, we’re not foreseeing the need for additional Russian provisions, but the situation could change and we’ll not hesitate to add more if necessary,” chief executive Masahiro Kihara told an earnings briefing.

The lender is among other global banks, including Citigroup, Credit Suisse and Unicredit, to announcing provisions related to Russia in recent weeks.

SMFG, the second-largest lender in Japan, took US$582.16 million in provisions for its Russian exposure.

In addition, it booked a 47 billion yen (S$508.6 million) write-down on the value of aircraft that its Dublin-based aircraft leasing arm has been unable to recover from Russian airlines since terminating leases in line with Western sanctions against Moscow.

SMFG has also been hit by alleged market manipulation at its unlisted brokerage arm SMBC Nikko Securities, which led some clients to temporarily suspend businesses with the brokerage house. The bank said it expects the revenue impact at 20 billion yen or more for this financial year ending March.

SMFG reported a 3.7% rise in fourth-quarter net profit.

SEE ALSO

Sumitomo Mitsui in talks for stake in Marathon Capital: sources

Mizuho CEO to step down after system failures, reports say

For this financial year, both banks expect net profits to stay almost flat compared to the previous year, even though they are forecasting a drop in credit-related costs as the impact of the pandemic wanes.

Corporate bankruptcies in Japan have remained low thanks to government subsidies and zero-interest loans to small businesses to cushion them from the economic effect of the pandemic.

But analysts say there will be a limit to how much such subsidies can continue to suppress bankruptcies since the Ukraine crisis and a weak yen are pushing up fuel and raw material costs. REUTERS