TOKYO MUFG raised its full-year profit forecast by a quarter and said it is buying project-finance assets from Royal Bank of Scotland worth 3.8 billion pounds ($6.1 billion), expanding its overseas reach as loan demand remains tepid in Japan.
Mitsubishi UFJ Financial Group (MUFG), Japan's biggest bank by assets, joined smaller rivals Mizuho Financial Group and Sumitomo Mitsui Financial Group in raising its forecast, after bond trading gains and lower credit costs helped its second-quarter net profit nearly triple.
But Japan's top three banks are struggling to boost their core lending operations as a murky economic outlook prompts companies to curb business investment, underlining the need to diversify revenue sources and seek growth abroad.
Overall Japanese bank lending fell for an 11th consecutive month in October.
"It's hard to see such robust earnings from bond trading continuing (in the second half)," said Shinichi Ina, a banking analyst at Credit Suisse Securities.
"There are also some worries about future credit risks due to the high valuation of the yen ... and uncertainty about consumer finance businesses after the full implementation of the moneylending law, which all point to a slowdown in the second half," Ina added.
Many analysts expect Japan's economy to stall, or even contract slightly, in the next two quarters as the yen's strength hurts exports and factory output slumps after stimulus measures for fuel-efficient cars expired in September.
MUFG has been the most active among Japan's top banks in expanding overseas, having taken a one-fifth stake in U.S. investment bank Morgan Stanley at the height of the financial crisis. It also bought assets from two U.S. banks this year.
Sources said earlier this month that MUFG was in talks to buy the project finance loans and assets from RBS.
On Friday, Mizuho said it would buy a 1.6 percent stake in BlackRock Inc, the world's largest money manager, for $500 million.
COMFORTABLE ON CAPITAL
The outlook for Japan's banks has also been weighed down by uncertainties over capital requirements related to the new Basel III global banking regulations.
The new Basel III requirements, designed to prevent another financial crisis, will force banks to hold top-quality capital totaling 7 percent of their risk-bearing assets by January 2019.
MUFG joined Mizuho and SMFG by saying on Monday it would be able to meet the new requirements without further capital raising. The big three raised a total 4.5 trillion yen ($54.5 billion) in share offerings in the past two years.
For the year to March, MUFG lifted its net profit forecast to 500 billion yen ($6.1 billion). That compared with 400 billion yen previously and topped an average estimate of 469.8 billion yen in a poll of 15 analysts by Thomson Reuters I/B/E/S.
Mizuho, Japan's second-biggest bank, and third-ranked Sumitomo Mitsui also raised their annual forecasts on Friday.
MUFG turned a July-September net profit of 190.4 billion yen, almost triple its 65.0 billion yen profit a year earlier.
Credit Suisse had forecast a net profit of 126.7 billion yen for MUFG in the second quarter, while Citigroup Global Markets Japan had estimated a 131.9 billion yen net profit.
Reuters calculated MUFG's quarterly figures and the brokerage forecasts by subtracting first-quarter results from six-month figures.
Shares of MUFG have lost about 14 percent so far this year, underperforming a 7 percent drop in the benchmark Nikkei average.
Before the results, the stock ended down 0.3 percent, against the Nikkei's 1.1 percent rise.
(Writing by Chris Gallagher; Editing by Edwina Gibbs and Muralikumar Anantharaman)