Megabanks’ profit margins in big squeeze
(20 May 2013 – Japan) Lower profits are expected by Japanese megabanks this year due to the monetary easing making loans less profitable.
Japan’s three biggest banks forecast an earnings drop, with Sumitomo Mitsui Banking Corporation predicting that its net income will fall 27 percent to US$5.7 billion in the year ending March.
Mitsubishi UFJ Financial Group, Japan’s largest bank expects its profit to fall 11 percent to US$7.4 billion, while Mizuho Financial Group also expects an 11 percent drop to US$4.9 billion.
Falling interest rates on the back of the Bank of Japan (BoJ)’s efforts to end deflation are curbing loan profitability, keeping net interest margins among Japanese lenders the lowest in Asia.
Analysts believe the challenge for Japan’s banks this year is finding a way to increase profit from lending, at a time when interest rates are squeezing margins.
The megabanks will need to take advantage of their brokerage and fee businesses that are benefiting from the market rebound.