PREVIEW-Japan banks likely to post solid Q1 on trading

* SMFG results on July 28, MUFG and Mizuho on July 30

* Three banks expected to post solid Q1 on bond trading

* Loan demand remains sluggish, uncertainty lingers

By Taiga Uranaka

TOKYO, July 26 (BestGrowthStock) – Japan’s three biggest banks are
expected to report solid first-quarter results this week, driven
by bond trading profits and lower credit costs, but few will see
it as a sign of full-fledged recovery as their core lending
activities remain sluggish.

With households and businesses still cautious about spending
amid economic uncertainty, the banks are seeing far more money
sitting in savings accounts than they lend, prompting them to buy
Japanese government bonds.

Mitsubishi UFJ Financial Group (8306.T: ), the No.1 bank by
assets, and No.3 Sumitomo Mitsui Financial Group (8316.T: ) are
likely to post a sharp rise in earnings for April-June, while
Mizuho Financial Group (8411.T: ) is seen returning to profit.

“Usually, for the megabanks we should be happy if April-June
earnings reach 20 percent of their full-year forecasts, but this
quarter I expect them to be 25 percent or more,” said Shinichi
Tamura, a banking analyst at Barclays Capital Japan.

“With bond prices up, the banks are likely to be making more
profits from trading than they expected, and are likely to see
smaller credit costs as there have not been big bankruptcies
during the quarter,” he said.

MUFG is expected to post a net profit of 140 billion yen
($1.6 billion) for the April-June first quarter, up 84 percent
from a year earlier, with SMFG reporting 100 billion yen, up 37
percent, according to estimates by Citigroup Global Markets Japan
banking analyst Hironari Nozaki.

No estimate was available for Mizuho.

The Nikkei business daily said Mizuho is likely to report a
net profit of around 150 billion yen for the first quarter, MUFG
a profit of more than 100 billion and SMFG a profit of 150-200
billion. [ID:nTOE66O003]
StarMine link for Japanese banks: http://r.reuters.com/xet29m

SUSTAINABLE GROWTH NOT YET SEEN

But a jump in first-quarter earnings is unlikely to impress
many in the market, as the banks’ lending business, which still
accounts for the bulk of their profits, remains sluggish due to
weak credit demand.

Outstanding loans held by Japanese banks continue to shrink,
falling 2 percent in June from a year earlier, the same as May,
which was the biggest annual decline in almost five years.

“The business environment remains tough for banks. With
strong revenue growth hard to expect anytime soon, net profit
growth depends on cost control,” said Chikako Horiuchi, an
analyst at Fitch Ratings in Tokyo.

Pressure for growth has been building on the top three banks
as they have to justify massive dilution of shares after raising
more than $50 billion since December 2008 to prepare for tighter
capital rules.

The banks have been stepping up their operations in Asia,
hoping to tap the region’s growing economies, and MUFG and SMFG
have said they are also looking to expand businesses in the
United States, including possible acquisitions of banks there.

“The megabanks are seeking revenue sources abroad, but we
have yet to see how much growth overseas businesses will
deliver,” Fitch’s Horiuchi said.

Stocks

($1=87.01 Yen)
(Editing by Michael Watson)

PREVIEW-Japan banks likely to post solid Q1 on trading