Strong first-quarter earnings growth is a tailwind for achieving the upwardly revised forecast, but the degree of reliance on provision reversals needs to be assessed

In the first quarter of the fiscal year ending March 2027, ordinary income was ¥37.105 billion, up 42.6% year on year, ordinary income was ¥20.521 billion, up 207.7%, and net income attributable to owners of the parent was ¥14.086 billion, up 158.5%. Ordinary income was ¥6.667 billion and net income was ¥5.448 billion in the same period a year earlier, so the earnings improvement was substantial. In addition to higher interest on loans, the company cited the recognition of gains from the reversal of allowance for loan losses as a factor behind the increases in revenue and profit. The results therefore reflect a rebound in credit costs, rather than simply an expansion in the loan balance.

For the full year, the forecast was raised on 30 September from ordinary income of ¥47.5 billion and net income of ¥32.0 billion as of May to ¥56.0 billion and ¥44.0 billion, respectively. Progress against the revised forecast was approximately 36.6% for ordinary income and 32.0% for net income based on first-quarter results. In banking, a simple one-quarter comparison with one-fourth of the full-year forecast is not possible because of quarterly seasonality, bond gains and losses, and the timing of provision recognition. However, how much profit accumulates in the first half will be the first key point in assessing the credibility of the upwardly revised forecast.

The fact that underlying credit costs were negative ¥8.981 billion in the fiscal year ended March 2026 is important when assessing earnings quality. Gains from the reversal of allowance for loan losses also boosted first-quarter profit, but the available first-quarter financial summary does not provide a sufficient breakdown of the reversal gains, the general and specific allowances for loan losses, and overall underlying credit costs, including recoveries of written-off loans. The next review therefore needs to determine whether interest on loans and net interest income can continue to support profit after the reversal gains have run their course.

Other operating income and expenses were negative ¥8.204 billion in the fiscal year ended March 2026, deteriorating from a negative ¥1.399 billion in the previous fiscal year. By contrast, the deficit in net fees and commissions narrowed to ¥0.2 billion in the same fiscal year, suggesting that improved fee income may have been offset by fluctuations in bond and market-related gains and losses. In the second quarter, it will be necessary to confirm how much of the increase in ordinary income came from interest on loans, bond gains and losses, and reversal gains on loan-loss allowances, respectively, as well as the credit-cost assumption underlying the full-year forecast of ¥56.0 billion.