July 30, 2018 / 7:23 AM / 3 months ago

Japan's SMFG first-quarter profit down 6 percent on bigger tax bill

TOKYO (Reuters) - Sumitomo Mitsui Financial Group (SMFG) (8316.T) reported a 6 percent drop in quarterly net profit, as bigger tax bills offset benefits from cost cutting measures and smaller bad loan losses.

FILE PHOTO: A sign board of Sumitomo Mitsui Banking Corporation, part of Sumitomo Mitsui Financial Group Inc (SMFG), is seen outside its branch in Tokyo July 30, 2014. REUTERS/Yuya Shino/File Photo

SMFG, the first among major Japanese lenders to report results, also continued to struggle with weak returns on loans over the quarter amid the Bank of Japan’s five-year old aggressive monetary policy that has driven down interests on everything from corporate loans to mortgages.

Japan’s No.3 lender by assets said its net profit came in at 227.1 billion yen ($2.04 billion) for the first quarter ended June, versus 241.5 billion yen a year earlier.

The bank said income tax for the quarter increased 33.1 billion yen due to the absence of tax benefits it had enjoyed last year in connection with sales of securities.

Excluding taxes of 82.9 billion yen, SMFG’s profit rose 4.7 percent to 330.6 billion yen.

SMFG has been by far the leanest among Japan’s top three banks in terms of expense as a portion of revenues. It said its expense ratio was 59.6 percent in the first quarter, down 2 percentage points from a year earlier period.

SMFG’s profits were also buoyed by 29 billion yen in gains from selling its equity holdings.

Japanese banks, as a traditional business practice, pick up small stakes in corporate clients. But SMFG and its rivals have been trying to cut these holdings in recent years as the practice has come under criticism for amplifying banks’ risk exposure to market swings and hindering greater corporate governance at issuer companies.

SMFG’s domestic loan-to-deposit spread, difference between interest earned on loans and interest paid on deposits, at its core banking unit, fell to 0.95 percent in the first quarter from 0.99 a year earlier, hurt by BOJ’s monetary easing.

For the year ending in March, SMFG reiterated its forecast for a net profit of 700 billion yen, down 4.7 percent from a year ago. The compares with an average estimate of 717.8 billion yen from 14 analysts polled by Thomson Reuters I/B/E/S.

Bigger rivals Mitsubishi UFJ Financial Group (8306.T) and Mizuho Financial Group (8411.T) are scheduled to announce their first-quarter results later in the week.

Reporting by Taiga Uranaka; Editing by Himani Sarkar

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