Sumitomo Mitsui Quarterly Net Falls on Bond Trading

Sumitomo Mitsui Financial Group Inc., Japan’s second-biggest bank by market value, posted a 21 percent decline in third-quarter profit as income from lending and bond trading dropped.

Net income fell to 97.6 billion yen ($1.2 billion) in the three months ended Dec. 31, from 124.3 billion yen a year earlier. Quarterly earnings were calculated by subtracting first-half profit from nine-month figures reported in a statement to the Tokyo Stock Exchange today.

Japanese government bonds lost 0.9 percent in the three months ended Dec. 31, the worst quarter since 2008, indexes compiled by Bank of America Merrill Lynch show, slashing Sumitomo Mitsui’s bond-trading profit 82 percent in the quarter. While a 13-month slump in bank lending drove net interest income lower, analysts including Nana Otsuki say demand for credit will pick up later this year as the economy gains momentum.

“Lending demand may start picking up as soon as September,” Otsuki, who covers banks at UBS AG in Tokyo, said before the report. “Capital investment may be stimulated in the second half of next fiscal year if deflationary pressure subsides.”

Income from lending fell 3.9 percent in the October-December quarter to 330.5 billion yen from a year earlier, based on Bloomberg calculations derived from the nine-month earnings statements. Profit from the sale of bond holdings plunged to 9.55 billion yen from 52.98 billion yen a year earlier. Bad-loan costs fell 43 percent.

New President

Sumitomo Mitsui today named Koichi Miyata as president, replacing Teisuke Kitayama. Takeshi Kunibe was appointed president of the lender’s retail unit, Sumitomo Mitsui Banking Corp., taking over from Masayuki Oku.

Miyata, 57, said the bank will continue to expand in Asia as factors such as a declining population damp prospects for growth at home.

“Our group wants to make all-out efforts to capitalize on growing infrastructure-related demand in Asia,” Miyata, who previously served as a director overseeing divisions such as strategic financial planning, said at a news briefing today.

Sumitomo Mitsui has signed business alliance agreements with banks in China, the Philippines, Vietnam, Malaysia, Indonesia and India.

Reports today supported the Bank of Japan’s view that the domestic economy may soon pick up. Consumer prices slid 0.4 percent in December from a year earlier, the smallest drop since 2009. The unemployment rate fell to 4.9 percent, the first decrease since September.

Banks Lead Drop

Still, banks led a drop in the Topix stock index today after Standard & Poor’s yesterday cut the nation’s credit rating for the first time in nine years. Sumitomo Mitsui slid 1.6 percent and bigger rival Mitsubishi UFJ Financial Group Inc. lost 2.7 percent. The lenders are among the largest holders of Japan’s government debt, which S&P now rates AA-.

“The market is still overly cautious about Japanese megabanks’ prospects,” Yoshinobu Yamada, an analyst at Deutsche Bank AG, said before the earnings report. “Lending demand is on the verge of a recovery phase in tandem with economic growth.”

Net income for the nine months ended Dec. 31 more than doubled to 515.1 billion yen, the report showed. Sumitomo Mitsui kept its full-year profit forecast at 540 billion yen.

The lender said today that it will make credit card company Cedyna Financial Corp. a wholly owned unit. In addition, Kunibe said the bank doesn’t rule out making Promise Co. a subsidiary.

The business environment for Promise, Japan’s second-largest consumer lender, remains “severe” and Sumitomo Mitsui will support the company “if needed,” Kunibe, 56, told reporters.

Sumitomo has a 21 percent stake in Tokyo-based Promise, which today reported a 34 percent plunge in nine-month profit as a government clampdown on the industry crimped lending and forced it to pay back overcharged interest.

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