Japan's Six Major Bank Groups Report Falling Profits

Consolidated net income for Japan's six major bank groups was down 34% in the fiscal year ending 03/08, while operating profit also fell 3.7%. This is the second year of declinng profits. In addition to significant write-offs for subprime-related losses, commissions from sales of mutual funds, which had been seen as a significant source of new profit growth, have fallen off significantly after the passing of a new financial transactions law and stricter "know your client" rules, as well as the sell-off in Japanese stocks to March of this year. The weak economy is also resulting in higher credit costs because of SME (small and medium-sized enterprise) defaults.

Moreover, the profit rebound in 03/09 should be modest because of continued credit costs, weak loan demand and limited prospects for loan-deposit spread expansion as the BOJ sits on its hands and frets about a slowing Japan economy as well as the risks to global growth.