By Anton Bridge
TOKYO (Reuters) -Japan's three megabanks raised their annual profit forecasts to all-time highs on Thursday, fuelled by robust lending demand and higher margins following a July interest rate hike by the Bank of Japan.
The lenders, all reporting financial results on Thursday, are benefitting from higher borrowing costs after seven years of negative policy rates kept lending margins razor-thin.
Mitsubishi UFJ (NYSE:MUFG) Financial Group, the top bank by assets, said second-quarter profit surged 90% on higher interest rates and the sale of cross-held shares. It raised its forecast for annual net profit to 1.75 trillion yen ($11.2 billion) from a previous estimate of 1.5 trillion yen.
It saw higher loan and deposit interest income generated by its domestic retail and corporate lending businesses thanks to higher interest rates and improved lending spreads.
MUFG also booked healthy growth in fees from its asset and wealth management businesses, but net income in its global investment banking business dropped on higher credit costs. It said it would aim to meet a return-on-equity target of around 9% this fiscal year, earlier than expected.
Sumitomo Mitsui Financial Group (NYSE:SMFG), the second-largest lender by assets, raised its annual net profit guidance to a record 1.16 trillion yen after a 27% jump in second-quarter profit.
SMFG chief executive officer Toru Nakashima said that while the group had benefitted from tailwinds such as a 196 billion yen gain on the sale of equity holdings, primarily from offloading cross-shareholdings, and the weak yen flattering its overseas income, it achieved profit growth in each of its business segments.
SMFG estimated the impact on net interest income of the interest rate hikes announced thus far to total 100 billion yen, of which 70 billion would fall by the end of March 2025.
Mizuho (NYSE:MFG) Financial Group, the No. 3 player, said its second quarter net income rose more than 60% and raised its full-year earnings forecast to a record 820 billion yen.
Underscoring the bumper results, Mizuho announced a share buyback of up to 100 billion yen - its first in 16 years - while lifting its previous dividend estimate by 15 yen to 130 yen for the year.
"We have entered a new stage of growth investment and strengthening shareholder returns," CEO Masahiro Kihara told a media briefing.
Japan's central bank raised its policy rate to 0.25% in July after ending negative interest rates in March, pushing Mizuho's loan and deposit rate margin for its domestic lending business up for the second consecutive quarter.
Mizuho estimated the financial impact from the pair of rate hikes would total 85 billion yen over the course of this financial year.
For the July-September period, it reported a group net profit of 277 billion yen, up from 170 billion yen in the same quarter a year earlier.
($1 = 155.8400 yen)