Mizuho Financial Group and Sumitomo Mitsui Financial Group expect core lending activities to remain sluggish this year, with little clarity so far about the strength of demand for loans related to earthquake reconstruction efforts.
Shares of Japan's top banks fell on Friday after government comments appeared to indicate banks may be asked to forgive some loans related to Tokyo Electric Power and its troubled nuclear plant.
While the direct impact of the March 11 earthquake and tsunami has been relatively limited on the lenders, the ensuing stock market plunge, led by Tokyo Electric shares, dealt a blow to them.
Both Mizuho and SMFG fell into the red in the final quarter of the year just ended, hurt by losses on their holdings in Tokyo Electric and other stocks. Mizuho Financial Group, Japan's second-largest bank by assets, posted a loss of 8.8 billion yen ($108 million) for the three months ended in March versus a profit of 113 billion yen a year ago.
SMFG, Japan's third-largest by assets, said its fourth-quarter net loss was 39 billion yen compared with a profit of 24 billion a year earlier. "The stock market slumped and interest rates became unstable so the banks were hit by the market. They also suffered poor performance at their units, Mizuho at its securities unit and SMFG at its consumer finance unit," said Chikako Horiuchi, analyst at Fitch Ratings in Tokyo.
TEPID OUTLOOK: For the year through March 2012, SMFG forecast a net profit of 400 billion yen ($4.9 billion), down 15.9 percent from the previous year and slightly above Thomson Reuters Starmine's SmartEstimate of 396.7 billion yen. The lender said the fall is mostly due to the absence of hefty bond gains that boosted SMFG and its bigger rivals in the previous financial year.
"We expect a certain degree of reconstruction-related loan demand, but we cannot tell how much it will be at this moment," SMFG President Koichi Miyata told an earnings briefing.
"Excluding this, we don't see a pickup in loan demand and we have to expect a flat growth in profits from corporate banking," he said. Mizuho forecast net profit of 460 billion yen this year, up 11 percent from the previous financial year and above Thomson Reuters Starmine's SmartEstimate of 378.5 billion yen.
But the bank said the profit rise would be mostly due to the improvement of its Mizuho Securities unit and said its core commercial lending activities is expected to remain under pressure this year.
Central bank data showed on Thursday that Japanese bank lending fell 0.9 percent in April from a year earlier, extending its decline for a 17th consecutive month. [ID:nLJE7EU02M]
Weak commercial banking growth prospects at home are likely to put further pressure on the banks and hasten expansion of their overseas operations, which are not yet big enough to boost their profits.
SMFG said it aims to raise overseas earnings against total client businesses to about 30 percent over three years from 23 percent now by expanding its commercial banking business in Asia.
POTENTIAL BURDEN ON BANKS: Japanese bank shares fell after the top government spokesman, discussing a financial assistance plan for Tokyo Electric Power, said a distinction should be made between loans made before the March 11 earthquake and tsunami and those extended after the disaster. [ID:nL3E7GD0D0] [ID:nL3E7GD00W]
Chief Cabinet Secretary Yukio Edano said banks should be asked to cooperate in easing Tokyo Electric's financial burden. The market interpreted his comments as an indication banks may be asked to forgive some loans. Shares of Sumitomo Mitsui Financial Group, the utility's main creditor bank, dropped 4 percent.
Asked about possibility of some kind of concessions from the lender, heads of both banks said it was too early to comment on the matter. (Additional reporting by Junko Fujita; Writing by Matthew Driskill; Editing by Muralikumar Anantharaman)