Sumitomo Mitsui Profit Unexpectedly Rises 17% on Stock Gains

  • Lower bad-loan costs also buoy bank's third-quarter earnings
  • Stock rout may dent returns on further sales of shareholdings

Sumitomo Mitsui Financial Group Inc.’s third-quarter profit unexpectedly rose 17 percent as gains from sales of its shareholdings and lower bad-debt costs cushioned it from declining loan and bond trading income.

Net income climbed to 238.1 billion yen ($2 billion) in the three months ended Dec. 31 from 202.7 billion yen a year earlier, figures derived from a nine-month statement showed Tuesday. That beat the 192.4 billion-yen average estimate of four analysts surveyed by Bloomberg.

This year’s stock-market rout now threatens to dent gains on further sales of shareholdings that Japanese banks pledged to offload as part of a corporate governance overhaul. Risks are also rising from the slowdown in China and a slump in commodity prices, prompting Sumitomo Mitsui President Koichi Miyata to say last month that it will be difficult to expand lending in Asia for a while.

“Sumitomo Mitsui is progressing in line with its plans, but not far enough ahead to warrant an upgrade in guidance,” Makoto Kuroda, a Tokyo-based analyst at JPMorgan Chase & Co., said before the results. “We’ll be looking for any impact the recent turmoil in financial markets may have on the sale of cross-shareholdings in the next quarter.”

On Track

Nine-month profit fell 8.2 percent to 626.2 billion yen, representing 82 percent of the bank’s full-year forecast of 760 billion yen. Progress toward the goal was impeded in the previous quarter by a 55 billion yen writedown on its investment in Indonesian lender PT Bank Tabungan Pensiunan Nasional.

Gains on the sale of stock holdings jumped to 20.1 billion yen in the third quarter from 11.9 billion yen a year earlier as the bank made progress on trimming stakes in its client companies, the results showed. Quarterly profit was also boosted by the recording of deferred tax assets against unrealized losses on shares that the company now plans to sell due to its change in policy on cross-shareholdings.

The nation’s largest banks may sell 5.6 trillion yen of stakes by March 2019, with Tokyo-based Sumitomo Mitsui offloading 1.8 trillion yen, according to estimates by Bloomberg Intelligence analyst Francis Chan. Japan’s second-largest lender by market value and its peers vowed last year to reduce their shareholdings as part of a governance code introduced by Prime Minister Shinzo Abe’s government to make companies more responsive to investors.

Lending Income

Net interest income, or revenue from lending minus payments on deposits, fell 11 percent last quarter from a year earlier, the results showed. Profit from trading government bonds and other securities dropped 35 percent. Income from fees and commissions increased 1.9 percent. Credit-related costs were roughly halved to 21.5 billion yen.

The bank’s loan book in Asia fell about 5 percent from a year earlier to $71 billion at the end of December. Total overseas lending climbed 7 percent to $197 billion, led by growth in the Americas and Europe.

Shares of Sumitomo Mitsui fell 2.4 percent before the results, extending this year’s decline to 15 percent. The Topix Banks Index has dropped 16 percent, more than the benchmark Topix’s 12 percent retreat.

Mizuho Financial Group Inc., the third-largest lender by market value, is scheduled to report results on Friday, followed by Mitsubishi UFJ Financial Group Inc. on Feb 1.

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