First Read: Japan Banks "Q4 results: Earnings environment to remain favo..."

Research evidence excerpt

First Read: Japan Banks "Q4 results: Earnings environment to remain favo..."

Q: How were the results at Fukuoka Financial Group (8354)?

In line: domestic yen-denominated deposit and lending net interest income was the key

earnings driver, but challenges remain in non-interest income growth and improving the

profitability of Minna no Bank (Earnings Materials)

- What are the key takeaways from the results?

A key takeaway is that in FY3/27 continued growth in domestic yen-denominated

deposit and lending interest income is set to underpin steady earnings expansion.

However, the main challenge is likely the lacklustre growth in non-interest income. In

FY3/26, non-interest income benefited from one-off items such as system-related

external sales revenues associated with Minna no Bank, but on a consolidated bank

basis, non-interest income remained broadly flat. In particular, corporate-related fees

reflected a slowdown in momentum for M&A advisory fees and syndicated loans. In

addition, growth in loan volume does not look strong compared to that of Tokyo-area

regional banks. Overall, the results once again highlight the need for the group to

further expand its fee-based business, particularly in areas such as structured finance,

which management has identified as a strategic focus.

- How would we expect investors to react?

We expect a slightly positive reaction. On the positive side, the group has progressed

with improving yields on its yen bond portfolio and demonstrated flexible balance sheet

management aimed at enhancing capital efficiency. By using gains on marketable

securities sales, including strategic equity holdings and alternative assets, the group has

made progress in resolving problematic valuation losses on yen bonds. However, one