* Q1 net down 6 pct at MUFG, 38 pct Mizuho, 20 pct SMFG
* Overseas expansion expenses bring down MUFG profit
* Mizuho, SMFG stock-related gains drop vs year prior
(Recasts, adds profit breakdown, analyst comments, context)
By Taiga Uranaka
TOKYO, July 31 Mitsubishi UFJ Financial Group
(MUFG) reported a far milder quarterly profit decline
than its main banking rivals as aggressive overseas expansion
dulled the impact of perennially weak loan demand at home.
MUFG on Thursday said net profit slid 5.8 percent in
April-June. Mizuho Financial Group and Sumitomo Mitsui
Financial Group Inc (SMFG), however, suffered
double-digit percentage falls, primarily because the value of
shares the banks own grew at a slower rate than a year earlier.
Japan's biggest lender by assets, which owns about one-fifth
of U.S. bank Morgan Stanley, has been the more active of
the three "megabanks" in overseas markets in recent years. That
has helped it rely less on stock-related gains, which drove bank
profits to record highs last year.
In the April-June quarter, MUFG was the only one of the
three to increase revenue. MUFG attributed the gain to a rise in
overseas lending and last year's $5 billion acquisition of Bank
of Ayudhya PCL, Thailand's fifth biggest bank by
Outstanding overseas loans at MUFG grew 25 percent on year
to 33.9 trillion yen ($329.89 billion) as at the end of June,
partly boosted by the loans on Ayudhya's books. Overseas loans
totalled $159 billion and $175 billion at Mizuho and SMFG.
But expenses related to overseas expansion at MUFG - which
aspires to be a top 10 bank in the United States - brought down
net profit to 240.5 billion yen in April-June from 255.3 billion
yen a year earlier.
At Mizuho and SMFG, the decline was much more acute.
First-quarter profit fell 38 percent to 154.7 billion yen at
Mizuho, and on Wednesday, SMFG said profit fell 20 percent to
"The year-earlier quarter was too good (for Mizuho and
SMFG), including strong earnings at brokerage subsidiaries and
big stock market-related gains," said Miki Murakami, director at
Fitch Ratings in Tokyo.
All three banks booked record profit in the year ended March
when economic growth pledges by Prime Minister Shinzo Abe
sparked a surge in share prices, pushing up the value of stock
holdings. But price moves have since moderated in tandem with
sentiment towards "Abenomics".
Japan's benchmark Nikkei share index rose 2.3
percent in April-June, compared with 10 percent in the same
period a year earlier.
Over the same time frame, stock-related gains fell 42
percent at both Mizuho and SMFG. At MUFG, gains rose to 17.9
billion yen from 12.8 billion yen a year earlier, when the bank
wrote down the value of stocks where prices fell below certain
thresholds recorded on its books.
Shares of MUFG itself closed 0.9 percent higher before the
bank announced earnings on Thursday, versus a 0.2 percent
decline in the benchmark index. Mizuho closed up 0.1
percent, and SMFG ended up 1.7 percent.
FALLING INTEREST MARGINS
Loan volumes at Japanese banks are starting to increase
after years of stagnation, reflecting demand spurred by
Abenomics. However the rate of growth has not been quick enough
to cancel out a decline in interest margins, or the difference
between interest charged on loans and paid on deposits.
One element of Abenomics involved the central bank buying
Japanese government bonds (JGBs), a measure aimed at ending a
decade of deflation. Buying JGBs increased the supply of money
and so brought down the cost of borrowing, simulating loan
demand. However, the measure also compelled banks to lower
already-low interest rates.
At MUFG's core banking units, the interest margin was 1.11
percent in the first quarter, from 1.19 percent a year prior.
Bank executives say margins are unlikely to rise while the Bank
of Japan (BOJ) keeps buying JGBs.
Yields on JGBs have been low since the BOJ started purchases
in April last year. In consequence, commercial banks' mortgage
rates - which are influenced by JGB yields - have hovered near
MUFG's August 10-year fixed-mortgage rate for most qualified
borrowers is an all-time low of 1.3 percent, after being lowered
from July's 1.35 percent.
Fitch's Murakami said that, in such an environment, "a sharp
recovery in domestic lending business is unlikely in the near
(1 US dollar = 102.7600 Japanese yen)
(Editing by Christopher Cushing)