July 31, 2019 / 10:10 AM / 2 months ago

WRAPUP 1-Japan's MUFG weathers near-zero rates with 24% profit jump in Q1

(Adds details, Mizhuo results, context, background)

* MUFG Q1 net profit 391 bln yen vs 315 bln yen year earlier

* Avoided write-down on Indonesian Bank Danamon

* Results point to weak outlook for domestic focus

By Takashi Umekawa

TOKYO, July 31 (Reuters) - Japan’s Mitsubishi UFJ Financial Group on Wednesday posted a 24% jump in first-quarter profit, as the sale of foreign bonds and other one-off gains helped it ride out weakness in its core banking business.

MUFG and other major Japanese banks have been hurt by an ultra-low interest rate environment that is part of the Bank of Japan’s (BOJ) aggressive monetary easing. But MUFG, Japan’s biggest bank, has fared better than some of its domestic rivals.

Rival Mizuho Financial Group on Wednesday eked out a less than 1% rise in first-quarter profit, as overseas lending helped offset tepid results at home. For scores of smaller, more domestic-focused banks the problems are even greater: years of near-zero rates in the world’s third-largest economy has made traditional lending barely profitable.

The results come a day after BOJ Governor Haruhiko Kuroda cautioned that the central bank could further ease policy if need be. The bank has already committed to keeping rates at ultra-low levels at least through spring 2020.

MUFG, Japan’s largest lender by assets, reported a profit of 391 billion yen ($3.60 billion) for the three-month period, versus 315 billion yen a year earlier.

For the full year ending March, the bank retained its profit forecast of 900 billion yen, down 3% on year. That compared with the 920.8 billion yen average of 11 analyst estimates compiled by Refinitiv.

FOREIGN BOND SALES

MUFG earned 85.2 billion yen by selling foreign bonds which the bank had bought before interest rates started to decline. Its bottom line was also buoyed by a 23.9 billion yen gain from selling stocks of corporate clients.

Traditional Japanese business practice saw banks acquire small stakes in corporate clients. But MUFG and its rivals have been trying to cut these holdings as the practice has come under criticism for amplifying banks’ risk exposure to market swings and hindering greater corporate governance at issuer companies.

MUFG earlier in the quarter faced the possibility of booking a write-down in PT Bank Danamon Indonesia Tbk, of which it owns 94%, as the Indonesian lender’s share price sank. A slight price recovery at the end of the quarter, however, spared MUFG the charge.

Mizuho, Japan’s third-largest lender by assets, reported April-June profit of 162.4 billion yen ($1.50 billion) compared with 161 billion yen in the same period a year earlier. The profit was also buoyed by a 28.2 billion yen gain from selling stocks of corporate clients.

For the full year through March, Mizuho kept its profit forecast at 470 billion yen, which was almost five times higher than the profit of the previous year. That compared with the 472.1 billion yen average of 11 analyst estimates compiled by Refinitiv.

The domestic lending business remained tepid, with a loan-to-deposit rate margin - or difference between interest earned on loans and paid on deposits - falling to 0.78% from 0.83% a year earlier. ($1 = 108.5300 yen) (Reporting by Takashi Umekawa; additional reporting by Junko Fujita; Editing by Christopher Cushing, David Dolan and Gopakumar Warrier)

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