Photo/Illutration Signs of the three megabanks: MUFG Bank, Mizuho Bank and Sumitomo Mitsui Bank (Asahi Shimbun file photo)

Total net profits at Japan’s three megabanks surged to 1.8 trillion yen ($12 billion) in the April-September period, buoyed by interest rate hikes overseas and the weak yen, their interim earnings reports showed.

The total reached a record high level, and two of the megabanks are now forecasting record net profits for the full year.

Mitsubishi UFJ Financial Group Inc. (MUFG) posted a record half-year net profit of 927.2 billion yen, nearly quadruple the figure from the same period last year.

The rise was partly due to expanded lending in the United States, where interest rates are rising, the bank said.

For the full year, MUFG is forecasting a record net profit of 1.3 trillion yen.

“Our earning capacity is steadily growing,” said Hironori Kamezawa, president of MUFG.

The operating profit at Sumitomo Mitsui Financial Group Inc. (SMFG) dropped because of higher foreign currency procurement costs due to the weak yen, but its net profit still rose slightly to a record high for the half-year period.

The increase was attributed to strong lending both domestically and internationally, and the weak yen.

Fumihiko Ito, chief financial officer of SMFG, said “an upward shift is quite possible” even with a possible future strong yen.

SMFG raised its full-year net profit forecast from 820 billion yen to a record 920 billion yen.

Mizuho Financial Group Inc. reported a more than 20 percent increase in net profit from April-September period last year.

The bank benefited from strong lending in the United States and Europe, and a significant increase in investment earnings from the rising value of Japanese stocks.

Mizuho revised its full-year net profit forecast upward to 640 billion yen.

However, there are still some concerns.

“The European economy is already deteriorating, and there are uncertainties about the future of the United States,” said Masahiro Kihara, president of Mizuho. “In China, the worsening real estate market is affecting consumption.”

RISING INTEREST RATES IN SIGHT

Japanese banks are eagerly watching moves by the Bank of Japan, which has long maintained an ultra-loose monetary policy, including long-term interest rates hovering around zero.

But following the rapid rate hikes in the United States last year, Japan’s long-term interest rates also rose.

The BOJ virtually raised the cap on long-term interest rates to 1 percent in July this year and further loosened its grip in October to allow the rates to rise beyond the 1 percent line.

Financial institutions have raised fixed adjust its monetary easing and long-term deposit rates.

The central bank is expected to not only further adjust its monetary easing policy but also fully shift away from the policy.

Much of the lending by financial institutions is short-term and linked to the short-term interest rates that the BOJ has set to negative.

The three megabanks each estimate their earnings will increase by 30 billion yen to 50 billion yen if the BOJ ends the negative interest rate policy.

In preparation for interest rate hikes, the three megabanks are focusing on collecting deposits, the source of their lending.

In March, SMFG released a financial services app called Olive for retail customers. It plans to use the app to increase the number of accounts through points-awarding campaigns and other methods.

“We will collect deposits cost-effectively in preparation for a world with interest rates,” Ito said.

However, companies may become more cautious about borrowing if interest rates rise.

“If we support corporate growth and structural reforms, there will be demand for funds,” Kihara said.

(This article was written by Chinami Tajika and Kyosuke Yamamoto.)

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