Japanese banks tread cautiously on earnings as Omicron highlights bad debt risks


People walk past a branch of the Mitsubishi UFJ Financial Group of Tokyo-Mitsubishi UFJ (MUFG) bank in Tokyo, Japan, May 16, 2016. REUTERS/Thomas Peter

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TOKYO, Feb 2 (Reuters) – Japan’s biggest lenders all sounded the alarm on Wednesday about the risk the Omicron variant could have on their revenues, rekindling fears that a resurgent pandemic could trigger more bad debt.

It was a sobering assessment of Japan’s three major banks – some of the world’s largest lenders by assets – and highlighted how the latest variant of the coronavirus could put further downward pressure on a already fragile national economy.

Major lender Mitsubishi UFJ Financial Group Inc (8306.T) maintained its full-year net profit outlook at 1.05 trillion yen ($9.16 billion), although its third-quarter profit quarter rose 40% from a year earlier, bringing the nine-month total to 1.07 trillion yen.

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The annual forecast is compared to the 1.08 trillion yen average of estimates from 11 analysts compiled by Refinitiv.

“With chip shortages impacting supply chains and the Omicron outbreak clouding the economic outlook, we will need to consider opportunities to reserve supplies prospectively,” a MUFG spokesperson said during a briefing. briefing.

Bank profits have been boosted in recent quarters by the release of cash from provisions that had been built up to deal with a possible flood of bad debts linked to the pandemic, as government subsidies kept many companies afloat. .

But the third quarter did not see such a boost.

Credit costs at major banks rose from the previous quarter, with provisions being made for some large borrowers amid fears the Omicron outbreak could dampen the economy’s nascent consumer-led recovery.

New COVID-19 cases in Tokyo topped 20,000 for the first time on Wednesday, dampening hopes that a wave of infections fueled by Omicron is peaking. The capital and most of Japan are now under lockdown to contain the spread of the virus.

Sumitomo Mitsui Financial Group Inc (8316.T), the country’s second-largest bank, reported third-quarter net profit of 168.7 billion yen, up 3% from a year earlier.

Net profit at Mizuho Financial Group Inc (8411.T), the country’s third-largest lender, fell 33% to 93.0 billion yen for the three months to December.

Both Sumitomo Mitsui and Mizuho maintained their full-year earnings guidance.

Banks also spoke of the risks associated with the tightening of US monetary policy, with the Federal Reserve expected to start raising interest rates from March.

“We will carefully manage our foreign bond portfolio as we now see greater downside risks to the economy due to more rapid tightening,” a Mizuho spokesperson told a briefing. .

($1 = 114.6000 yen)

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Reporting by Makiko Yamazaki and Ritsuko Shimizu; Editing by Kim Coghill

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