Japan's top 3 banks poised to benefit from spurt in domestic loan growth

TOKYO - Japan's biggest banks, flush with cash from a year-long stock market rally, are poised to benefit this year from a spurt in loan growth at home fuelled by the economic stimulus measures of Prime Minister Shinzo Abe.

Mitsubishi UFJ Financial Group Inc, Mizuho Financial Group Inc, and Mitsui Sumitomo Financial Group Inc all booked increased lending in the latest quarter, in a business that contracted before "Abenomics" kicked in at the beginning of 2013.

Domestic loans at major Japanese banks grew 2 per cent in December for the quickest annual pace since 2009 and surpassed 200 trillion yen for first time in over three years, central bank data show.

Lending is likely to pick up as around a quarter of Japanese companies, according to a Reuters poll conducted last month, plan to increase capital expenditure in the financial year beginning in April.

In further positive signs, the central bank's index of business sentiment reached its highest in six years in the latest quarter, and spending on machinery hit a five-year high.

Lending growth so far has been driven by funding for large-scale acquisitions. MUFG is part-financing drinks maker Suntory Holdings Ltd's SUNTH.UL $13.6 billion purchase of US whiskey maker Beam Inc (BEAM.N: Quote, Profile, Research, Stock Buzz).

Other primary customers include utilities such as Tokyo Electric Power Co (9501.T: Quote, Profile, Research, Stock Buzz) who want funds to buy fossil fuels, as nuclear plants are closed while the nation debates their safety.

The larger lending volumes may help banks buoy earnings as interest rates fall, with banks undercutting each other to win the increased custom.

The average interest rate of Japanese banks on domestic loans was 0.863 per cent in December, a shade above the 0.821 per cent of August which was the lowest since the central bank began compiling the information at the end of 1993.

"I don't expect to see an improvement in loan interest margins in the near future," said Naoko Nemoto, managing director at Standard & Poor's Ratings Japan.


Banks spent the majority of 2013 booking significant gains from stocks, as share prices reached multi-year highs lifting banks' income from stock trading and brokerage commission.

Overall net profit at MUFG increased 47.5 per cent to 785.4 billion yen in April-December.

Net interest income, or profit from interest on loans, grew to 1.39 trillion yen in April-December, from 1.31 trillion yen a year earlier.

The domestic corporate loan balance of MUFG grew 500 billion yen, or 1.23 per cent, over three months to 41 trillion yen at December-end.

The earnings mirrored those of Mizuho and SMFG, where 9-month profit rose 43.7 per cent and 28 per cent respectively.

At Mizuho, domestic loans reached 55.8 trillion yen at December-end from 55 trillion three months earlier.

Domestic loans edged up to 48.5 trillion yen at SMFG from 47.8 trillion yen during the same period.