Mitsubishi UFJ Financial Group Inc., Japan’s largest bank, posted a bigger-than-estimated increase in first-quarter profit on higher fees and a jump in loans abroad.
Net income climbed 16 percent to 277.8 billion yen ($2.2 billion) for the three months ended June from a year earlier, the Tokyo-based bank said in a statement on Friday. That exceeded the 253.8 billion yen average estimate of six analysts surveyed by Bloomberg.
With falling interest rates squeezing interest margins at home, Japanese banks are expanding overseas and seeking income from areas such as sales of investment products. Mizuho Financial Group Inc. also posted an increase in profit for the quarter, led by higher fee income.
“Japanese banks are performing well,” Akira Takai, an analyst at Daiwa Securities Group Inc. in Tokyo, said before the results. “Overseas business will drive full-year results above the bank’s own estimates.”
Mizuho, the nation’s third-biggest bank by market value, posted a 2.1 percent increase in first-quarter net income to 158 billion yen. That matched analysts’ estimates.
Mitsubishi UFJ, which earned a record 1.03 trillion yen last year, maintained its full-year net income target at 950 billion yen. Mizuho kept its forecast at 630 billion yen.
“I can see Mitsubishi UFJ posting another record profit,” Daiwa’s Takai said.
Shares of Mitsubishi UFJ closed 0.8 percent higher before the results, taking this year’s advance to 35 percent, the best performance among Japan’s three so-called megabanks. Mizuho is up 32 percent in 2015. Sumitomo Mitsui Financial Group Inc., which is also scheduled to report Friday, has climbed 27 percent, more than the benchmark Topix index’s 18 percent gain.
Lending profit at Mitsubishi UFJ increased 11 percent last quarter from a year earlier to 545.3 billion yen, according to calculations based on the statement. The bank’s average domestic interest-rate spread, a measure of loan profitability, slipped by 8 basis points year-on-year to 0.88 percent.
“There is negative pressure on spread,” Naoki Morimura, a Tokyo-based analyst at Fitch Ratings, said before the results. “It’s going to be another year or two before we see any improvement, so increasing the absolute amount of lending is important.”
Mitsubishi UFJ’s overseas loans surged 20 percent from a year earlier to 42.4 trillion yen at the end of June, according to the bank’s presentation materials. Income from fees and commissions increased 7.5 percent.
Japan’s largest banks have announced acquisitions abroad valued at about $6 billion this year. That includes Mizuho’s purchase of North American loans from Royal Bank of Scotland Group Plc and Sumitomo Mitsui’s takeover of General Electric Co.’s European buyout-lending unit.
Mitsubishi UFJ, which bought a Thai lender in 2013, is considering acquiring a bank in Indonesia, the Philippines or India, Asia-Pacific CEO Go Watanabe said in an interview in June. The company is interested in buying a U.S. asset manager for at least $2.5 billion, Chief Executive Officer Nobuyuki Hirano told the Financial Times this month.
Mitsubishi UFJ also released its stance on ownership of shares in client companies on Friday, saying its “basic policy” is to reduce the stakes. Sumitomo Mitsui and Mizuho have already stated their commitments to sell holdings that lack justification amid government moves to strengthen corporate governance.