Sumitomo Mitsui Financial Group Inc (8316.T) and Mizuho Financial Group (8411.T) on Monday reported strong second-quarter profits on demand from overseas clients looking to lock in loans ahead of higher interest rates.
Sumitomo Mitsui, Japan’s second-largest bank by assets, lifted its net profit forecast for the full year to March by 5% to 770 billion yen ($5.51 billion) after posting an 8% profit increase for July-September.
“Expectations for higher interest rates drove overseas clients, mainly in the United States, to lock in loans,” Sumitomo Mitsui CEO Jun Ohta told a press briefing. Lending in Japan was also brisk as companies made fresh investments as part of their post-pandemic business strategies, he added.
Smaller rival Mizuho posted a 29% increase in quarterly net profit, also citing growth in lending overseas.
Meanwhile, second-quarter net profit plunged 70.5% to 117.41 billion yen at Japan’s largest lender Mitsubishi UFJ Financial Group Inc (8306.T) because of a one-off accounting loss related to the sale this year of U.S. unit MUFG Union Bank.
But Mitsubishi UFJ, which owns about 22% of Morgan Stanley (MS.N), also saw healthy growth in overseas lending.
Mitsubishi UFJ and Mizuho both maintained their full-year profit outlooks.
Mitsubishi UFJ and Sumitomo Mitsui announced share repurchases of worth up to 150 billion yen and 200 billion yen, respectively.
The heads of the top three lenders all sounded a note of caution about their earnings outlooks, however.
“In Japan, we would take loan loss provisions in a forward-looking way for industries that cannot pass on rising costs to prices,” Mizuho CEO Masahiro Kihara said. “And overseas particularly needs caution as higher interest rates would drain cash flows at some firms,” he added.
Rising U.S. interest rates have also badly hit the banks’ holdings on overseas bonds, mainly U.S. Treasuries, in which they invested heavily in search of higher returns amid ultra-low rates at home.
Combined valuation losses on such holdings at the three banks stood at 3.972 trillion yen at the end of September, an increase from 2.656 trillion yen at the end of June.
But the banks all said a large part of their positions have been hedged and losses are manageable. “We have reduced our positions significantly already,” Mitsubishi UFJ CEO Hironori Kamezawa said.
($1 = 139.7200 yen)