Mizuho Financial Group, Japan's biggest bank, reported a 54 percent jump in annual net profit on Monday after a tax rebate boosted its bottom line, and forecast a higher profit than expected in the current year. Mizuho and other big banks, in crisis as recently as two years ago, have rebounded thanks to a stronger economy and efforts to clear years of accumulated bad loans. But while the end of Japan's bad-debt mess has given lenders new vigour, Mizuho and its peers have struggled to revamp their traditional, corporate loan-centred business models to seek new sources of growth.
"Not surprisingly, our first couple of years were difficult ones," President Terunobu Maeda told a news conference, referring to problems since the launch of Mizuho's main commercial arm in 2002, after the group was created by a merger of three banks.
Mizuho posted the largest loss in Japanese corporate history in the following year on an $18 billion write-off of problem loans. "Now our internal issues have been sorted out and we are focused squarely on our customers," Maeda said. Mizuho's group net profit totalled 627.38 billion yen ($5.80 billion) in the year ended March 31, up 54.2 percent but nearly 100 billion yen below analysts' expectations and the bank's own forecast, revised upward in December.
A weaker-performing bond portfolio and a fall in lending income weighed on earnings, Mizuho said. Profit from core operations fell to just over 800 billion yen from 954 billion yen a year earlier, though the bank forecast a rebound this year.
"It just goes to show that the core business is still under pressure," said Jason Rogers, a credit analyst at Barclays Capital.
For the current year, Mizuho forecast net profit will decline 20 percent to 500 billion yen. But that would represent profit growth of about 15 billion yen if last year's tax gain is excluded, Maeda said
The forecast was higher than the 419.4 billion yen profit expected on average by seven analysts surveyed by Reuters Estimates, suggesting the bank has its work cut out in meeting its target.
"The bank is making a decent return," Rogers said, "(but) credit demand is sluggish generally, and without a rise in interest rates it's hard to see substantial profit growth."
Padding Mizuho's bottom line was a roughly 280 billion yen tax windfall booked after a successful lawsuit against the government. But the bank has also made strides in cleaning up its balance sheet, reducing costs associated with soured loans.
Bad loans fell to 2.16 percent of all lending by the end of March from 3.14 percent six months earlier and 4.4 percent in March 2004, the bank said.
It also posted a 10.8 percent rise in commissions and other non-lending income, a key element in its strategy to cut reliance on low-yielding corporate loans.
The tax dispute dated back to 1996, when the Industrial Bank of Japan, now Mizuho Corporate Bank, paid taxes on a 376 billion yen write-down of loans to a now-defunct mortgage firm. The state later allowed other banks to make similar write-downs tax-free, and Mizuho demanded a refund.