Mizuho Sees Profit Falling 11% as Negative Rates Hit Margins

  • Japanese bank is less pessimistic about outlook than analysts
  • Sumitomo Mitsui sees earnings rebounding from unexpected drop

Mizuho Financial Group Inc., Japan’s second-biggest lender by assets, forecast net income will decline 11 percent to a four-year low as the central bank’s negative interest-rate policy squeezes loan profitability.

Net income will decrease to 600 billion yen ($5.5 billion) in the year ending March, the company said in a statement Friday. While Sumitomo Mitsui Financial Group Inc. said profit will rise 8.2 percent to 700 billion yen, that is after last year’s earnings unexpectedly fell.

The Tokyo-based companies are the first of Japan’s three biggest banks to indicate how earnings this fiscal year will be dented by the Bank of Japan’s January decision to start charging lenders for some of their excess reserves parked at the institution. Some bank executives and analysts are concerned that the policy’s impact on lenders’ profits will outweigh its ability to revive inflation and economic growth.

“It’s still difficult to predict how much impact there will be from negative interest rates,” said Ryoji Yoshizawa, a director at S&P Global Ratings in Tokyo. “I think we’ll need to wait and see until at least the end of the second quarter.”

Less Pessimistic

Mizuho is less pessimistic about next year’s outlook than analysts, who predict profit will fall to 575 billion yen, according to the average of nine estimates compiled by Bloomberg. Analysts see Sumitomo Mitsui’s profit at 698 billion yen, the survey showed.

Negative rates will have an impact of about 40 billion yen on this year’s earnings, Mizuho Chief Executive Officer Yasuhiro Sato said at a briefing in Tokyo. Sumitomo Mitsui expects a 20 billion-yen effect on pretax profit, President Koichi Miyata told reporters.

Sumitomo Mitsui’s net income fell 14 percent to 646.7 billion yen in the year ended March 31, missing its goal of 760 billion yen. The result was hampered by declining trading and interest income, an impairment loss on its investment in PT Bank Tabungan Pensiunan Nasional, and provisions for losses on the refund of overcharged interest at consumer-finance units.

“It’s very disappointing that we missed our profit target last year,” Miyata said. “We’ll endeavor to make sure we clear the 700 billion yen target for this year.”

Net income at Mizuho increased 9.6 percent to 670.9 billion yen, beating Sumitomo Mitsui’s results for the first time in nine years and exceeding its 630 billion yen target. Gains from sales of shareholdings and trading income helped to offset a drop in lending income.

Mizuho posted 205.7 billion yen in gains on the sale of stock holdings as it made progress in reducing stakes in its corporate clients in accordance with Japan’s new corporate governance code. It aims to dispose of about 550 billion yen of so-called cross-shareholdings in the next three years, according to a midterm business plan also released Friday.

“The sale of equity holdings made a significant contribution last year,” S&P’s Yoshizawa said.

The Topix Banks Index is the worst-performing industry group on Japan’s benchmark stock gauge this year after tumbling 32 percent. Mizuho has dropped 33 percent while Sumitomo Mitsui has slid 28 percent. Mitsubishi UFJ Financial Group Inc., the nation’s largest bank, has dropped 34 percent. It is scheduled to report results Monday.

Net interest income, or revenue from lending minus payments on deposits, fell 11 percent last fiscal year to 1 trillion yen, Mizuho said. Credit costs swelled to 30.4 billion yen from 4.7 billion yen a year earlier. Fees and commissions rose 2.4 percent and net trading and other operating income gained 18 percent.

At Sumitomo Mitsui, net interest income fell 5.5 percent and bond and securities trading profit slid 12 percent. Credit costs soared to 102.8 billion yen from 7.8 billion a year earlier as energy-related loans soured. Gains on stock holdings increased 3.5 percent.

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