Sumitomo Mitsui Raises Profit Forecast 29% on Stock Rebound

Sumitomo Mitsui Bank
A pedestrian walks past a Sumitomo Mitsui Banking Corp. branch in Tokyo. Photographer: Kiyoshi Ota/Bloomberg

Sumitomo Mitsui Financial Group Inc., Japan’s second-biggest bank by market value, raised its annual profit forecast 29 percent after gains in fee income and the value of its stock holdings boosted first-half earnings.

Net income will probably total 750 billion yen ($7.5 billion) in the year ending March 31, the Tokyo-based company said in a statement today. That compares with the 580 billion yen previously forecast and the 696.7 billion-yen average estimate of 19 analysts surveyed by Bloomberg.

The bank led by President Koichi Miyata has benefited from a Japanese stock-market rally which, while moderating in recent months, has spurred sales of investment products and increased the value of its shares in other companies. Lending at major banks has climbed for 11 months and corporate bankruptcies have fallen for 12 as the world’s third-largest economy recovers on the back of Prime Minister Shinzo Abe’s stimulus measures.

“Abenomics had a significant impact on the earnings, especially stock investments and fee businesses,” Rie Nishihara, a Tokyo-based senior analyst at Mizuho Securities Co., a unit of Japan’s third-biggest bank by market value, said before the results. “The economic recovery improved clients’ businesses and allowed the bank to reverse credit costs.”

Sumitomo Mitsui joins Toyota Motor Corp. and Panasonic Corp. in raising profit forecasts in a mixed earnings season that also saw companies from Nissan Motor Co. to Sony Corp. lower projections. Mitsubishi UFJ Financial Group Inc., Japan’s biggest lender, and Mizuho Financial Group Inc., the bank that’s being probed for lending to crime groups, are scheduled to release results on Nov. 14.

Quarterly Gain

Net income jumped 53 percent to 505.7 billion yen in the six months ended Sept. 30 from 331 billion yen a year earlier, Sumitomo Mitsui said today. Profit in the second quarter rose 2 percent from a year earlier to 217.4 billion yen, according to Bloomberg calculations based on the half-year data.

Shares of Sumitomo Mitsui closed 2 percent higher at 4,865 yen in Tokyo before the earnings announcement. Their 56 percent gain this year is the best performance among the three so-called megabanks and compares with the benchmark Topix Index’s 40 percent increase.

Resona Holdings Inc., Japan’s fifth-biggest bank by market value, also raised its full-year profit forecast today to 185 billion yen from 145 billion yen. That’s higher than the 164.3 billion-yen average estimate of 16 analysts surveyed.

Gangster Loans

Miyata today stressed the importance of severing ties with crime groups, after Japan’s financial regulator ordered Mizuho to bolster compliance in September for failing to end loans to gangsters through a consumer-credit affiliate.

“I don’t think our bank needs a big overhaul in measures to block anti-social groups, but this requires continued efforts,” Miyata said at a news briefing in Tokyo. The Financial Services Agency began inspecting the three megabanks this month following the probe into Mizuho.

Mizuho President Yasuhiro Sato is scheduled to answer questions in parliament tomorrow on the crime-loan issue. Sumitomo Mitsui’s banking unit chief, Takeshi Kunibe, is due to appear in his role as Japanese Bankers Association chairman.

Prime Minister Abe’s campaign to end deflation with fiscal spending and monetary easing helped Japanese stocks become the best performers in the developed world this year even after declining from a peak in May.

Higher Fees

Fees and commissions rose 22 percent in the April-September period from a year earlier to 490.1 billion yen, Sumitomo Mitsui said today. Its SMBC Nikko Securities Inc. unit contributed by posting a more than sixfold profit increase, the brokerage’s earnings data showed last month.

Sumitomo Mitsui had a 60.4 billion-yen gain from equity-related investments in the first half compared with a loss of 132.9 billion yen a year earlier, the statement showed. Lending income increased 15 percent to 780.3 billion yen.

Loans at major banks increased 1.7 percent in October, the 11th consecutive advance, Bank of Japan data show. That’s helping to offset the lowest loan profitability in Asia as asset purchases by Japan’s central bank depress interest rates. Net interest margins at the megabanks average 0.99 percent, data compiled by Bloomberg show.

Japan’s economy probably grew at an annual 1.7 percent rate in the three months ended Sept. 30, the fourth quarter of expansion, according to economists surveyed before government figures scheduled for release Nov. 14. As well as spur lending, the rebound has led to a drop in bankruptcies, allowing banks to reduce cash set aside for bad loans.

Third Arrow

Sumitomo Mitsui had 39.6 billion yen of credit-related revenue in the first half, compared with 48 billion yen in costs a year earlier, today’s statement showed. Business failures fell 7.3 percent in October, a 12th straight decline, Tokyo Shoko Research Ltd. data showed this week.

Still, with net income growth slowing in the second quarter, the profit windfall may be losing momentum as the stock rebound cools. The Topix has slid 5.5 percent since May 22 as investors examine whether Abe will succeed in pushing through policies to make Japan more competitive -- the so-called third arrow of his economic strategy.

“We’re likely to see a slowdown in the second-half earnings,” said Nishihara at Mizuho Securities. “I have a sense that Abe’s third arrow may be falling short of market expectations.”

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