Japan's three megabanks reported that domestic deposits are growing in line with loans, setting them in a stronger position for a possible end to negative policy interest rates in the country.
Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. all reported gains in deposits at home in the April-to-December period. MUFG said its deposits rose 2.6% year over year to ￥172.6 trillion in the first three quarters of the fiscal year that ends on March 31. Similarly, SMFG reported a 4% growth in deposits to ￥124.8 trillion over the same period, while Mizuho said deposits rose 4.4% to ￥116.201 trillion.
"The important thing is they [the megabanks] are in the process of increasing deposits" as they prepare for a possible end to negative policy interest rates, said Toyoki Sameshima, a senior analyst at SBI Securities Co.
The Bank of Japan is widely expected to later this year abandon its negative interest rates policy that has been in place since 2016. The central bank has tightened policy by increasing its tolerance for higher yields on Japanese government bonds, though it has not committed to any time frame for when it might lift its benchmark rate from minus 0.10%. Japan is expected to raise interest rates at a time most central banks may start to ease monetary policy after several tightening moves since 2022.
Growing loan book
MUFG's loans to Japanese customers edged 0.4% higher to ￥67.4 trillion in the first nine months of the current fiscal year. SMFG increased loans by 4% to ￥62.7 trillion and Mizuho 1.6% to￥55.6 trillion, according to the banks' earnings statements for the April-to-December period. Higher policy rates are expected to also boost the lenders' net interest margins.
The trio of megabanks has also managed to grow incomes in the first three quarters of the current fiscal year. MUFG reported on Feb. 5 that its net income nearly quadrupled to ￥1.297 trillion for the April-to-December period, mainly due to lower loan loss provisions. Last week, SMFG reported a 3.5% year-over-year increase in net income to ￥792.8 billion, while Mizuho posted an 18.2% gain to ￥642.3 billion.
The three megabanks made significant progress in achieving their full-year earnings targets. MUFG reached 99.8% of its target of ￥1.3 trillion in full year net income in the first three quarters, while Mizuho's topped its aim ￥640 billion. SMFG achieved 86% of its full-year earnings target of ￥920 billion, according to the banks' earnings reports.
Still, Mizuho did not revise its full-year target upward "amid the uncertainty of the economic environment," a bank spokesperson said.
Meanwhile, the megabanks have been reducing their holdings of Japanese government bonds as they prepare for policy normalization. MUFG held ￥20.7 trillion worth of sovereign debt at the end of December 2023, down by ￥2.7 trillion in March 2023. SMFG also reduced its holdings of the government debt by ￥696.7 billion to ￥8.8 trillion during the same period, while Mizuho shed ￥2.1 trillion of the government bonds to ￥14.3 trillion.