Assess the sustainability of earnings growth driven by policy rates and earning assets

FY2027-Q1 ordinary income rose 36.3% year on year to ¥78,425 million, ordinary profit rose 26.1% to ¥30,209 million, and profit attributable to owners of the parent rose 24.5% to ¥20,965 million. The full-year forecasts have been revised to ordinary income of ¥343,456 million, ordinary profit of ¥125,780 million, and profit attributable to owners of the parent of ¥88,145 million, putting Q1 progress at 22.8%, 24.0% and 23.8%, respectively. These figures are somewhat below a simple even quarterly allocation, but banking has seasonal patterns, so this alone does not indicate a shortfall.

The main drivers of profit growth were the increase in earning assets and higher yields on earning assets following the Bank of Japan’s policy rate hike. In FY2027-Q1, interest income from funds increased by ¥19,482 million year on year, while commission and fee income also increased by ¥1,553 million, supported by growth in the number of accounts and their conversion into primary accounts. At the same time, funding costs resulting from growth in deposits and higher deposit rates, as well as personnel expenses, software amortisation, outsourcing expenses and advertising expenses, also increased. Not all of the increase in income therefore flows through to profit.

In previous periods of earnings growth, both interest income from funds and fee income expanded. Ordinary profit was ¥48,288 million in FY2026-H1 and ¥103,091 million for FY2026, while the company’s FY2027-Q1 plan has been raised to ¥125,780 million. However, the latest earnings report does not disclose the monetary impact of higher deposit rates on funding costs, the average yield on earning assets, net interest margin, or the breakdown of deposits by fixed and variable rates. The information available for reproducing the earnings contribution from higher policy rates is therefore limited.

For FY2027-H1, ¥62,890 million, half of the full-year ordinary profit forecast, will serve as a mechanical progress benchmark, and we will check whether the increase in interest income from funds has slowed from the ¥19,482 million recorded in Q1. It will also be important to see whether growth in commission and fee income remains around ¥1,553 million, whether a breakdown into cards, foreign exchange and direct debits is provided, and how much the increase in funding costs from higher deposit rates weighed on profit. As the reported segment consists solely of banking, the profit contributions of retail, corporate and overseas operations cannot be compared using segment profit and loss.