Japan megabank profits down, stimulus threatens bottom line

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TOKYO: Japan’s biggest banks tumbled in Tokyo share trading on Monday as a drop in their latest earnings was compounded by fears that the Bank of Japan’s new stimulus measures would hit their bottom line.

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Shares in the trio—Mitsubishi UFJ, Sumitomo Mitsui Financial Group and Mizuho Financial Group—suffered a sell-off after the central bank on Friday unveiled plans to effectively charge lenders on some deposits.

The negative interest rate policy is intended to increase lending to people and businesses in order to kickstart the world’s number three economy and fend off deflation.

The idea is to give commercial banks an incentive not to park their cash at the central bank.

But the move threatens to weigh on bank profits, analysts said, as they battle to drive up lending at home.

Some analysts saw the BoJ bid as a desperate move after three years of Prime Minister Shinzo Abe’s big-spending and monetary easing policy known as “Abenomics.” This had limited impact on the moribund economy.

“While banks potentially benefit along with the rest of the economy from Friday’s valiant attempt by the BoJ to rescue Abenomics, in the short and medium term the sector seems likely to face substantial downward earnings pressure,” David Threadgold, analyst at Keefe, Bruyette & Woods, said in a commentary.

He added that the banking unit of Japan Post was most at risk owing to the size of its domestic business.

After markets closed Monday, Mitsubishi UFJ said its net profit for the nine months through December fell 8 percent to 852.3 billion yen ($7.03 billion), as it saw lower gains on its vast debt holdings.

The bank’s shares tumbled 5.46 percent, while Sumitomo Mitsui dived 7.61 percent and Mizuho Financial Group dropped 5.87 percent.

Last week Sumitomo Mitsui said net profit dropped more than 8 percent, but it added that it would still hit a 760 billion net profit for the fiscal year to March.
Mizuho’s profit edged down from a year earlier.

“The new [BoJ] policy is unlikely to dispel growing concerns about the efficacy of Abenomics,” said Tobias Harris, a vice president at US-based political risk firm Teneo Intelligence.

“It could take significantly negative rates to convince businesses and households to move out of cash into other assets.”

The three-tiered system applies negative interest rates to new reserves parked at the central bank.

AFP

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