Although Japanese megabanks have beat their full-year earnings target by the end of the fiscal third quarter, they are maintaining their full-year estimates for now, citing an uncertain outlook of loan-loss provisions as the pandemic lingers.
Analysts say, unless the COVID-19 situation worsens further and more borrowers are on the verge of default, Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. are still on track to beat their net profit targets when the current fiscal year ends March 31.
"Banks tend to come up with lower earnings in the [fiscal] fourth quarter [compared with other quarters] as they clean up their balance sheet by writing off some burdens to get off to a good start for the next fiscal year," Toyoki Sameshima, an analyst at SBI Securities Co., said. "Even so, their full-year earnings are likely to surpass their current estimates."
In the three quarters through December 2020, MUFG reported a net profit of ¥607 billion, exceeding its full-year target of ¥600 billion. Sumitomo Mitsui posted earnings of ¥433.9 billion for the same period, more than its full-year target of ¥400 billion, while Mizuho's earnings came in at ¥354.4 billion for the nine-month period, above its full-year target of ¥350 billion.
Loan-loss provisions, or credit costs as the Japanese banks call, is the major swing factor in the banks' fiscal fourth-quarter results, analysts said.
During the nine months ended Dec. 31, 2020, MUFG's total credit costs surged to ¥343.66 billion, or 69% of its full-year estimate, from ¥84.30 billion a year earlier. Sumitomo Mitsui's total credit costs also more than doubled to ¥234.77 billion, or 52% of its full-year projection, from ¥96.46 billion a year earlier. Mizuho's total credit costs rose to ¥98.1 billion, or 49% of its full-year target, from ¥24.4 billion a year earlier.
Despite the surge in loan-loss provisions, the megabanks' fiscal third-quarter results are mixed.
MUFG's net income for the three quarters through December 2020 inched up 3.3% from a year earlier, Sumitomo Mitsui’s earnings for the same period slid 29% while Mizuho's net profit fell 12%.
"As long as the emergency situation in Japan doesn’t worsen by spring, I don’t think MUFG is likely to post a net loss for [the fiscal fourth quarter]," said Michael Makdad, an analyst at Morningstar. A profit in the fiscal fourth quarter means the lender will exceed its earnings target as of March 31.
Makdad expects Sumitomo Mitsui and Mizuho's fiscal full-year net profit to reach ¥515 billion and ¥436 billion, respectively, or 29% and 25% above their own targets.
MUFG, Sumitomo Mitsui and Mizuho had set aside ¥500 billion, ¥450 billion and ¥200 billion as loan-loss provisions for the current fiscal full year.
As of Feb. 3, US$1 was equivalent to ¥105.06.