Nomura Says 40% of Regional Banks May Report Lower Profit on Zero Rates

About 40 percent of Japan’s 84 listed regional banks are forecasting lower profit this fiscal year as profitability is squeezed by near zero interest rates, according to a report by Nomura Holdings Inc.

Of the regional lenders, 35 are forecasting a drop in profit for the 12 months ending March 31, said Masahiko Sato, a Tokyo-based analyst at Nomura, in a May 18 report. Combined net income at all listed regional banks is estimated to climb 6.6 percent to 600.6 billion yen ($6.5 billion), according to Sato.

Growth at Japan’s six largest banks will outpace regional lenders, with earnings forecast to rise 25 percent to a combined 1.4 trillion yen this year, according to data compiled by Bloomberg. Mizuho Financial Group Inc., Japan’s third-largest bank by value, on May 14 forecast net income will jump 80 percent to 430 billion yen this year.

“It looks as though the rebound in profit levels may have run its course,” Sato wrote in the note about the country’s regional lenders. “With no prospect of a hike in policy rates, we find banks anticipate no substantial rise in” core profits.

Sapporo Hokuyo Holdings Inc., based on the northern island of Hokkaido, is forecasting profit to fall 51 percent to 15.5 billion yen this year. Miyazaki Bank Ltd., located in the south of Japan, forecast a profit drop of 43 percent to 5 billion yen.

Bank of Japan policy makers are expected to keep the interest rate at 0.1 percent at a two-day meeting that starts tomorrow, according to 16 economists surveyed by Bloomberg.

Net interest income, including from loans, at the regional banks fell 2.9 percent to 3.9 trillion yen in the year ended March 31, Sato said. Bad loan charges fell 43 percent to 606.9 billion yen at regional lenders last year, helping the banks report 563.6 billion yen in combined profit, according to Nomura.

To contact the reporters on this story: Finbarr Flynn in Tokyo at fflynn3@bloomberg.net; Shingo Kawamoto in Tokyo at skawamoto2@bloomberg.net

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