Japan's SMFG, Mizuho post surge in first-half profit as credit costs ease

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Mizuho Bank's signboard is pictured in Tokyo, Japan, January 25, 2017. Picture taken January 25, 2017. REUTERS/Kim Kyung-Hoon

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TOKYO, Nov 12 (Reuters) - Two of Japan's megabanks, Sumitomo Mitsui Financial Group Inc (SMFG) and Mizuho Financial Group Inc, on Friday reported a surge in first-half profit as the economy ravaged by the COVID-19 pandemic recovered and credit costs abated.

SMFG (8316.T), Japan's second-largest bank by assets, said net profit jumped 69% to 456 billion yen ($4 billion) in the April-September period. Mizuho (8411.T), the No. 3 lender, said earnings rose 79% to 385.7 billion yen. Both banks lifted full-year profit forecasts.

As the COVID-19 crisis hammered the economy, lenders have been proactive in setting aside bad loan reserves, but intervention from the government has capped those losses, said S&P Global Ratings senior director Ryoji Yoshizawa.

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"Most of the banks have not recorded a large amount of credit costs thanks to the huge government support provided to corporate sectors," he said.

Going forward, overseas lending margins may be squeezed as the Federal Reserve starts to taper its financial easing, while sluggish recoveries in Southeast Asia could add to credit costs in those markets, he added.

SMFG estimates credit-related costs will total 300 billion yen for the full financial year. For the first six months, it booked 26.7 billion yen in such costs. Mizuho is expecting 100 billion yen in credit costs for the year, and recorded 49.6 billion yen in the first half.

Japanese banks have been struggling with years of ultra-low interest rates and a shrinking population. SMFG is looking overseas for growth opportunities.

In July, the company announced plans to buy a controlling stake in Fullerton India for $2 billion and to purchase nearly 5% of Jefferies Financial Group Inc (JEF.N) shares for $386 million. read more

Moody's Japan Senior Credit Analyst Tetsuya Yamamoto said SMFG's profitability is likely to improve due to "lower credit costs, higher profits from its aircraft leasing business and overseas operations in Asia, and additional cost reductions."

SMFG also announced it would spend up to 100 billion yen to buy back and retire outstanding shares.

Mizuho has been plagued this year by a series of system glitches in its ATM network. Chief Executive Officer Tatsufumi Sakai started his earnings presentation by apologising for the trouble. read more

Amidst a number of earnings on Friday, a takeover drama over smaller lender Shinsei Bank Ltd (8303.T) escalated.

SBI Holdings Inc (8473.T). said it would consider taking a majority stake in Shinsei if it succeeds in its $1.1 billion tender offer to raise its stake in the lender to 48% from about 20%.

However, SBI will retract its offer if Shinsei pursues a poison pill defence, it said. read more

Adding to the fray, a regulatory filing showed that City Index Eleventh, a fund backed by activist investor Yoshiaki Murakami, held 5.29% of Shinsei.

($1 = 114.0700 yen)

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Reporting by Rocky Swift and Makiko Yamazaki; Editing by Jacqueline Wong and Christian Schmollinger

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