High first-quarter earnings progress, but sustainability of net interest income and market-related gains and losses is the next focus

First-quarter ordinary income was ¥25,638 million, ordinary income was ¥4,237 million, and net income attributable to owners of the parent was ¥2,988 million. Year on year, ordinary income increased 18.9%, ordinary income increased 9.1%, and net income increased 10.5%, securing higher revenue and earnings at least on the surface. Operating income has not been disclosed, so an assessment based on the operating margin of general business companies is not possible; the focus should instead be on ordinary income and net interest income, which are more important for banks.

The full-year forecasts are ¥11,300 million for ordinary income and ¥7,000 million for net income. Comparing first-quarter results with the full-year forecasts on a simple basis, the progress rate for ordinary income is ¥4,237 million ÷ ¥11,300 million, or 37.5%, while the progress rate for net income is ¥2,988 million ÷ ¥7,000 million, or 42.7%. Ignoring seasonality, the mechanical half-year benchmarks are ¥5,650 million for ordinary income and ¥3,500 million for net income. Whether these levels are exceeded in FY2027-H1 will be the first benchmark for assessing the likelihood of achieving the full-year forecasts.

However, the first-quarter earnings growth was not uniform. While interest and other income from funds, including interest on loans, increased, funding costs, including interest on deposits, and other operating expenses, including losses on sales of Japanese government bonds and other bonds, also increased. The increase in ordinary income was limited to ¥356 million year on year, meaning that higher revenue did not translate directly into higher profit. In the second quarter, it will be necessary to assess the extent to which higher interest income on loans resulting from rising interest rates can absorb higher deposit funding costs and bond-related losses.

In addition, large unrealized losses on bonds classified as held to maturity were disclosed at the end of October, and the treatment of future losses on sales, impairment losses and valuation differences could affect the assumptions underlying the full-year forecasts. The company has not changed its full-year earnings or dividend forecasts at this point, but in FY2027-H1 it will be important to track whether the unrealized losses have affected realized gains and losses or other comprehensive income, whether the decline in credit-related expenses is continuing, and whether the company provides specific additional explanations supporting the unchanged forecasts.