A man walks past a signboard of Mitsubishi UFJ bank at its branch in Tokyo. Non-performing claims at the lending units of the firm, Japan’s biggest bank, totalled ¥1.16tn as of September 30, making up a record-low 1.08% of total loans.

Bloomberg
Tokyo

The cost for Japan’s biggest banks to deal with soured loans all but disappeared in the first-half as bankruptcies plunged.
Mizuho Financial Group’s lending arms had credit costs of just ¥400mn ($3.3mn) in the first-half, down from ¥539.3bn in the year ended March 2009 during the global financial crisis. Bad-debt ratios at the main banking units of Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group fell to record lows in the six months ended September 30. The two lenders took the cash set aside to cover delinquencies and booked it as profit, reports showed this month.
Declining credit costs since the worldwide meltdown have helped the three banking groups protect profit that has been under pressure from shrinking lending margins. Unprecedented monetary easing to revive the economy has lowered interest rates, making it easier for Japanese corporate borrowers to repay loans and stay in business, with bankruptcies tumbling to a 25-year low in August.
“We may have seen the peak in reversals of credit provisions,” said Akira Takai, a Tokyo-based analyst at Daiwa Securities Group, Japan’s second-biggest brokerage. “But with a recovering economy, credit expenses should remain low and stable.” Mitsubishi UFJ’s main lending units clawed back ¥22.5bn of reserves that had been set aside for non- performing loans in the six months ended September 30. Sumitomo Mitsui Banking Corp reversed provisions of ¥27.6bn and expects to record zero bad-debt costs for the year ending March.
Mitsubishi UFJ is forecasting credit expenses of ¥5bn at its banking units and Mizuho projects ¥50bn in costs.
Non-performing claims at the lending units of Mitsubishi UFJ, Japan’s biggest bank, totalled ¥1.16tn as of September 30, making up a record-low 1.08% of total loans. Sumitomo Mitsui Banking’s bad debts accounted for an unprecedented 0.85% of loans, and at Mizuho’s units they made up 1.06%.
Credit costs “remain at low levels,” Japanese Bankers Association chairman Yasuhiro Sato said on November 19. “We’ve reached a crucial point in cementing the economic recovery and ensuring this leads to growth over the medium to long-term.” The three so-called megabank groups earned a combined ¥1.4tn of net income in the fiscal first-half. While that’s down 3% from a year earlier, it represents 59% of their combined annual profit target. Shares of Mitsubishi UFJ have climbed 21% this year, Mizuho has gained 25% and Sumitomo Mitsui is up 9.8%.
Net income at companies in the Topix stock index, excluding financial firms, increased 17% in the six months ended September 30, according to SMBC Nikko Securities. Japanese corporate bankruptcies have fallen every month this year except March, and the number of cases dropped to 632 in August, the lowest since 1990, Tokyo Shoko Research data show. “We’re not seeing a rise in bankruptcies in Japan,” said Makoto Kuroda, an analyst at JPMorgan Chase & Co in Tokyo. “Low and stable credit costs are likely to continue.” On a consolidated basis, the three lenders are forecasting combined credit expenses will climb to ¥300bn this fiscal year from ¥174bn a year earlier. Daiwa’s Takai said the anticipated increase at the group level is due to costs in areas outside of traditional banking such as consumer finance.
Japanese banks, which have been expanding lending abroad, probably won’t experience a surge in bad-loan costs overseas, JPMorgan’s Kuroda said. While the impact of a slowing Chinese economy “can’t be ignored,” most of the banks’ loans outside of Japan are to state-owned or high-quality companies, Kuroda said.