Sumitomo Mitsui drops as global economy clouds profit outlook

[TOKYO] Sumitomo Mitsui Financial Group Inc. shares fell the most this year after the Japanese bank refrained from raising its full-year profit forecast despite better-than- expected results in the third quarter.

Japan's second-biggest bank by market value dropped as much as 2.6 per cent on the Tokyo Stock Exchange, the biggest intraday decline since December 16, and traded at 4,083.5 yen at 10:52 am local time. It was the second-worst performer on the Topix Banks Index, which lost 0.8 per cent.

Sumitomo Mitsui cited an "uncertain" global economic outlook among its reasons for keeping the 700 billion-yen (US$5.9 billion) profit forecast even after achieving 97 per cent of that amount. With oil prices slumping, the Tokyo-based bank faces the risk that energy-related loans will sour at a time when plunging interest rates make domestic lending even less profitable.

"Investors are worried that Sumitomo Mitsui may need to set aside funds for bad loans related to oil- and gas-related lending," Shinichi Ina, a Tokyo-based analyst at UBS Group AG, said by phone.

Net income climbed 1.8 per cent from a year earlier to 202.7 billion yen in the three months ended December 31, buoyed by bond trading and overseas lending. That beat the 168.8 billion-yen average estimate of five analysts surveyed by Bloomberg. Profit for the April-December period fell 3.2 per cent to 682.2 billion yen, the company said Tuesday.

The bank also said its conservative estimates for bad-loan costs and expectations for a stronger yen compared with last quarter are reasons for keeping the profit prediction unchanged.

Foreign oil and gas-related industries make up about 5 per cent to 6 per cent of Sumitomo Mitsui's credit, the lender said. Russia, which was cut to junk by Standard & Poor's on Monday, makes up less than 1 per cent.

Ina estimated that Sumitomo Mitsui has about 6 trillion yen in credit exposure to foreign oil and gas-related industries. Crude prices have tumbled about 55 per cent in the past six months.

BLOOMBERG