May 15, 2020 / 6:15 AM / 2 months ago

Japan's top banks predict surge in credit-related costs as virus hits economy

TOKYO (Reuters) - Full-year profit forecasts from Japan’s biggest banks on Friday fell short of analysts’ estimates as the lenders predicted a surge in credit-related costs in the wake of the coronavirus outbreak.

FILE PHOTO: Mizuho Financial Group's logo is seen next to an electronic board showing stock prices indexes at a branch of Mizuho Securities in Tokyo, Japan January 25, 2017. REUTERS/Kim Kyung-Hoon

Japanese banks have already been struggling with ultra-low interest rates for years and said credit-related costs in the current year would reach levels not seen since the global financial crisis.

Mitsubishi UFJ Financial Group Inc (MUFG), the country’s largest lender by assets and owner of a 24% stake in Wall Street investment bank Morgan Stanley (MS.N), said it expects 550 billion yen ($5.14 billion) in net income for the year ending in March 2021, compared with an average 762.6 billion forecast in a Refinitiv poll of analysts.

It expects 450 billion yen of credit-related costs for the current business year due to the coronavirus outbreak, as does No. 2 player Sumitomo Mitsui Financial Group Inc (SMFG) (8316.T).

Smaller rival Mizuho Financial Group Inc (8411.T), predicted 200 billion yen of credit-related costs and said the impact of the virus would continue through until 2022.

Japan’s economy is on the brink of a deep recession as the pandemic has paralyzed business activity and global trade. The country has reported close to 16,000 coronavirus infections and over 650 deaths.

“We are having a sense of crisis for at least next two years,” Mizuho’s CEO Tatsufumi Sakai told reporters on a conference call. “We will closely monitor the virus impact on credit-related costs.”

Mizuho forecast net income of 320 billion yen for the year ending in March 2021, below a Refinitiv poll estimate of 391.5 billion yen.

“The outbreak of coronavirus has been putting much stress on banks’ lending business,” said S&P Global Ratings senior director Ryoji Yoshizawa.

“Just like triage in the medical field, banks need to focus on financing to clients which are likely to survive while keeping their lending discipline, as banks also have a responsibility to protect customers’ deposits which are the sources of loans.”

SMFG OVERTAKES MUFG

MUFG reported a net profit of 528.2 billion yen for the year ended in March, below analysts’ estimate of 668.3 billion.

For the first time it was overtaken by SMFG, which reported an annual profit of 703.9 billion yen.

MUFG had cut its annual net profit estimate to 520 billion yen from 750 billion yen due to an impairment charge on units including PT Bank Danamon Indonesia Tbk (BDMN.JK) and Thailand’s Bank of Ayudhya PCL (BAY.BK).

“I deeply regret that we booked such impairment losses,” MUFG’s CEO Hironori Kamezawa, who took up the position last month, said.

Mizuho said its profit for the year ended in March was 448.6 billion yen, lagging analysts’ forecast for 464.3 billion yen but recovering from a profit of just 96.6 billion yen the previous year when the group was hit by one-time restructuring costs.

Reporting by Takashi Umekawa; Editing by Muralikumar Anantharaman and Susan Fenton

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