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Japan’s largest banks predict record profits as interest rates rise

Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group all predict that record profits for the year started in April after the country’s central bank ended its policy of negative interest rates.

MUFG, Japan’s largest lender, expects net profit of ¥1.5 trillion ($9.6 billion), up 0.7% from the previous year. SMFG aims for a 10% increase to ¥1.06 trillion and Mizuho expects profits to rise 10.5% to ¥750 billion.

The banks are benefiting from a profit increase after the Bank of Japan’s shift in March. Major banks, including the three, have about ¥200 trillion in the central bank reserve and with the 0.1% annual interest on the amount above the minimum requirement, they earn about ¥200 billion.

At SMFG, net income rose more than fourfold to ¥170 billion in the fourth fiscal quarter ended in March. Profits were helped by strong loan demand, driven by a pick-up in business customer activity. Mizuho’s fourth-quarter net income more than tripled to ¥36.7 billion.

“Everything worked out favorably for the banking business,” SMFG CEO Toru Nakashima said during a briefing.

The end of the BOJ’s negative interest rate policy increased SMFG’s net interest income by ¥40 billion, and the company will gain an additional ¥40 billion for every 10 basis points increase in the policy rate. Mizuho said the end of negative interest rates added 45 billion yen to profits.

Both MUFG and SMFG plan to buy back approximately ¥100 billion of their own shares. SMFG also plans to increase its dividend by ¥60 to ¥330 per share.

Mizuho CEO Masahiro Kihara said the bank will not buy back shares until it has built up sufficient capital reserves to invest in its growth strategy.

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