JAPAN’S top three banks are expected to forecast their highest profits in years, driven by a pickup in client activities and subdued bad loan costs.

Net income at Mitsubishi UFJ Financial Group (MUFG) may rise to 1.2 trillion yen (S$11.8 billion) for the new fiscal year that started in April, according to an average estimate of more than 10 analysts polled by Bloomberg. That would be a record for Japan’s largest lender.

Profit is expected to rise to 841.6 billion yen at number two lender Sumitomo Mitsui Financial Group, which will also be an all-time high, while Mizuho Financial Group’s net income for the new fiscal year is seen to be 596.1 billion yen, the biggest in seven years, according to the analyst estimates.

The three banks are scheduled to give their forecasts on Monday (May 15) when they announce the results for the year ended in March. The companies’ estimates are however likely to be lower than analysts’ projections, as is typical with Japanese banks that tend to take a more conservative stance at the beginning of the year.

The lenders are seen to benefit from an uptick in activities, after pandemic-related restrictions were lifted in Japan and elsewhere. They are also expected to project either smaller or around the same level of bad loan costs compared with the year just ended.

Profits may be boosted by an absence of losses from foreign bond holdings. The banks may have sold a large amount of Treasuries and other foreign notes at a loss in the fiscal fourth quarter ended March, to get rid of unrealised losses in their portfolios.

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Bank of Japan effect

The profit growth is predicted even though the banks are not counting on tailwinds from any changes by the Bank of Japan. Few are anticipating that the central bank will end its negative interest rate policy in the immediate future. Meanwhile, the domestic lending business is expected to remain tepid, keeping pressure on the banks to grow their overseas operations.

Share buybacks will also be closely watched, with SMBC Nikko Securities analyst Masahiko Sato. He added that he sees potential for banks such as MUFG to do this. The banks would need reasons beyond “market uncertainty” to shareholders if they postpone buybacks, he noted.

Sumitomo Mitsui and Mizuho are scheduled to announce their new medium-term business plans on Monday, with the focus on earnings targets set in these plans, as well as growth and capital strategies. BLOOMBERG