Japanese banks, including No.3 player Sumitomo Mitsui
Financial Group, have benefited from fewer bankruptcies in April-June on an
uptick in the world's second-biggest economy. Gains in their bond portfolios
also helped.
But weak loan demand and sluggish business and household
spending indicates the recovery never gained traction. Latest production data,
which showed factory output marking its biggest fall in more than a year, bodes
ill for the upturn.
"I am not sure such performance will be repeated in
quarters ahead," said Chikako Horiuchi, analyst at Fitch Ratings in Tokyo,
referring to earnings of the top Japanese banks.
"Unless they see recovery in their core banking
businesses, - lending and fee businesses - they cannot call it real
recovery."
Profits from the Japanese lenders contrasted with
surprise quarterly losses at Singapore's DBS Group Holdings and South Korea's
KB Financial Group, where newly appointed top executives sought to clean up the
banks' books.
New global capital rules for banks under the Basel III accord
to be finalized later this year add another layer of uncertainty for the
Japanese banks, though draft rules show they could be less onerous than
originally feared.
The lenders, among the worst capitalized globally last
year, have raised tens of billions of dollars partly to prepare for the new
capital rules.
They are now under pressure to draw up a viable growth
strategy in the face of weak economic prospects at home to justify their
massive fundraisings.
MUFG, which bought a 21 percent stake in Morgan Stanley
at the peak of the financial crisis, has been stepping up efforts to expand
revenue sources, including a brokerage venture with Morgan Stanley launched
earlier this year in Japan.
MUFG is trying to tap growing economies in Asia, with a
key focus on China. It is also eyeing a bigger presence in the United States,
where it acquired two small failed banks this year through its Union Bank unit
and hopes to make more buys.
Mizuho, which has raised $14.6 billion in two rounds of
fundraising in the last 12 months, has been streamlining its headquarters'
operations and expanding its Asian businesses.
"At this moment, we are not yet certain whether
Japan's top banks already have enough capital for new rules," said Fitch
Ratings' Horiuchi, referring to Basel III.
MUFG posted a net profit of 166.4 billion yen ($1.9
billion) for April-June, up from 75.9 billion yen. Citigroup Analyst Hironari
Nozaki had forecast a profit of 140 billion yen.
Mizuho's profit came in at 149.8 billion yen ($1.7
billion) for the quarter, up from a 4.5 billion yen loss, when it was hit by
bad derivatives bets. It was its best quarterly profit in three years.
DBS, Southeast Asia's biggest bank, posted its first
quarterly loss in almost five years after booking a $749 million goodwill charge
for its Hong Kong business.
South Korea's No. 2 banking group by market value, KB
Financial, posted its first quarterly net loss, dented by hefty provisions for
riskier assets in the property market.
KB's assets are heavily skewed toward builders and the
housing market, compared with rival Shinhan Financial Group, and its credit
risk has risen due to the prolonged slump in the housing sector.
KB set aside 1.5 trillion won in loan-loss reserves for
the quarter, far bigger than analysts' estimates of 700 billion won.
MUFG and Mizuho shares ended down 1 percent and 1.5
percent, respectively, ahead of the results. DBS was trading down 0.3 percent,
while KB closed 1.5 percent lower before the results.
