TOKYO (Reuters) - Japan's top banks are raising dividend payments and buying back their own shares as profits remain robust, responding to calls for the lenders to share more of the wealth they've earned on a slowly recovering economy.
Japanese companies are under intense investor scrutiny to justify how they use their earnings and have been criticized for hoarding too much cash.
The major banks, though, have to walk a fine line between heeding investor calls for returning cash and investing in growing overseas to make up for a still weak domestic business. Stricter global bank capital rules also make bank managements wary about returning capital.
The biggest of Japan's three "megabanks", Mitsubishi UFJ Financial Group (8306.T), said on Friday it would buy back as much as 100 billion yen ($840 million) of its own shares, just over 1 percent of the total.
"It's very positive. It follows the buyback it announced at the first-half results (in November)," said Credit Suisse analyst Takashi Miura. "It stokes expectations for a pattern of share buyback."
MUFG reported its second year of record net profit, worth $8.6 billion, for the 12 months through March, as its aggressive overseas expansion strategy paid off.
"We will keep a balanced mix of shareholder returns, strong capital base and growth," MUFG President Nobuyuki Hirano told a news conference. Overseas businesses will likely remain a growth driver for the next three years, he said, adding the bank's acquisition targets are in the United States and Asia.
Mizuho Financial Group (8411.T), Japan's second-largest lender by assets, raised its annual dividend to 7.5 yen per share from the 7 yen it had previously promised.
The lender reported an annual net profit much better than its own forecast, helped by stock-related gains and smaller bad-loan costs.
Mizuho CEO Yasuhiro Sato said even after meeting the promise of returning 30 percent of profits to shareholders, the bank still has cash to spend on investment. "We will actively consider inorganic growth, including overseas M&A," he said.
Earlier this week, No. 3 lender Sumitomo Mitsui Financial Group (8316.T) raised its annual dividend to 140 yen per share from 130 yen previously projected after posting a smaller-than-forecast drop in profit..
Japanese companies, sitting on a record 230 trillion yen ($1.9 trillion) of cash, are being urged by investors and politicians to spend more, with Finance Minister Taro Aso calling cash-hoarding companies "scrooges".
A string of measures has been introduced by regulators to make companies more responsive to investor demands, including a corporate governance code that requires two or more outside directors.
The measures seem to be working. Kengo Nishiyama, research analyst at Nomura, said Japan's listed companies are likely to return a record amount of cash to shareholders for the year ended in March, with dividends and share buybacks totaling 12.8 trillion yen.
Japanese banks have spent tens of billions of dollars on snapping up overseas assets, with MUFG being the most acquisitive, due to its ancestry and culture. Its buys include the $5 billion purchase of a 72 percent stake in Thailand's Bank of Ayudhya (BAY.BK) in 2013.
($1 = 120.1600 yen)
Editing by William Mallard and Muralikumar Anantharaman