Japan’s Three Megabanks See Soaring Profits Since Financial Overhaul in 2005

Japan’s three megabanks, Mizuho Financial Group, Sumitomo Mitsui Financial Group, and Mitsubishi UFJ Financial Group, have posted soaring quarterly profits for the first quarter since the overhaul of the financial industry in 2005. The combined consolidated net profits of the three groups have surpassed ¥3tn ($27.6bn) for the year ending in March 2024, reaching an increase of 26.4% from the previous fiscal year. It is a landmark achievement for the country’s financial industry.
 
The strong performance of these banks is credited to the widespread demand for financing both locally and globally and the recent increase in dollar margins in overseas operations, boosted by rising US interest rates. The net incomes of Mitsubishi UFJ and Sumitomo Mitsui both reached record levels, while Mizuho Financial was just shy of its record.
 
Mitsubishi UFJ Group CEO, Hironori Kamezawa has stated that the group’s core business profits were significantly boosted by an increase in earning capacity, primarily in client services. In the fiscal year ending March 2023, the net percentage of profits of these three corporations, as well as two other banking groups, Sumitomo Mitsui Trust Holdings and Resona Holdings, increased by 19.1% to ¥3,370.8 billion ($31bn).
 
The banking industry in Japan undergoes changes in the early 2000s, primarily the merging of banks in their restructurings to survive during the market downturns. The three groups, Mizuho, MUFG and Sumitomo were created to provide funds, advice, and financial services to governments, corporations, and individuals. Over the years since their formation, the three groups have achieved tremendous success, including owning one-third of the financial markets, with stables of companies including department and convenience stores, cable television networks and real-estate companies across Asia.
 
The financial industry of Japan has implemented significant reforms following the country’s downturn over the past few decades, caused by shrinking populations, aging people and digital technologies. Though these recent gains for the megabanks have set a new milestone for the financial industry, it has been noted that some Japanese banks have struggled to adapt to the digital revolution to compete with newer and smaller companies.
 
As new financial technologies persist, with cryptocurrencies and digital cashless payments being initiated, it remains unclear how the established larger banks will fare in the short-term. However, the credit ratings of the three megabanks have held strong and, with record profits going forward, it seems that these cornerstone banks will continue to dominate in the Japanese financial markets.
 
While the benefits of the three megabanks may seem insurmountable with their longstanding dominance, that dominance can quickly change with technological advancements and newer, fresher banking models. With the recent digital disruption in the finance industry and public trust declining in incumbent banks, these new models present a huge challenge for the survival of incumbent banking. Though traditional banking models hold strong today, the future is unknown and the industry will have to adapt to keep up with the changes