Mitsubishi UFJ Financial Group Inc. led an increase in first-quarter profit at Japan's biggest banks as fee income and loans abroad surged. Combined net income at Mitsubishi UFJ, Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. rose 12 percent from a year earlier to 703.7 billion yen ($5.7 billion) in the three months ended June 30, statements from the Tokyo-based lenders showed Friday. That's 30 percent of their combined full-year profit forecast.
Mitsubishi UFJ's loans abroad exceeded its domestic corporate lending for the first time as it lent more outside the country to make up for shrinking interest margins at home. The banks are also reaping fees from Japanese who are investing more of their savings amid a stock-market boom. "Japanese banks are performing well," Akira Takai, an analyst at Daiwa Securities Group Inc. in Tokyo, said before the results. "Overseas business will drive full-year results above the banks' own estimates."
Mitsubishi UFJ's net income climbed 16 percent to 277.8 billion yen, exceeding the 253.8 billion yen average estimate of six analysts surveyed by Bloomberg. Revenue at Japan's largest bank jumped 20 percent to a record 1.56 trillion yen. Profit at Sumitomo Mitsui, the nation's second-largest lender by market value, unexpectedly climbed 16 percent to 267.9 billion yen. Mizuho's net income rose 2.1 percent to 158 billion yen, in line with analysts' estimates. Mitsubishi UFJ, which earned an unprecedented 1.03 trillion yen last year, maintained its full-year profit target at 950 billion yen. Mizuho kept its forecast at 630 billion yen and Sumitomo Mitsui left its goal at 760 billion yen.
"I can see Mitsubishi UFJ posting another record profit," Daiwa's Takai said. Shares of Mitsubishi UFJ closed 0.8 percent higher before the results, taking this year's advance to 35 percent, the best performance among the three banks. Mizuho is up 32 percent, while Sumitomo Mitsui has climbed 27 percent, more than the benchmark Topix index's 18 percent gain.
Mitsubishi UFJ's average domestic interest-rate spread, a measure of loan profitability, slipped by 8 basis points year-on-year to 0.88 percent. Interest rates have fallen amid the Bank of Japan's unprecedented monetary easing to stimulate the economy and end deflation. "There is negative pressure on spread," said Naoki Morimura, a Tokyo-based analyst at Fitch Ratings. "It's going to be another year or two before we see any improvement, so increasing the absolute amount of lending is important."
Combined net interest income, or revenue from lending minus payments on deposits, at the three so-called megabanks rose 7.4 percent from a year earlier. Their income from fees and commissions increased 11 percent. Profit from trading government bonds and other securities gained 23 percent. Mitsubishi UFJ's overseas loans swelled 25 percent from a year earlier to 42.4 trillion yen at the end of June, exceeding its domestic corporate balance of 42.2 trillion yen, according to the bank's presentation materials.