Tailwinds from interest-rate normalization will determine earnings progress in FY2027-H1

FY2027-Q1 ordinary income was ¥77.863 billion, up 30.3% from ¥59.749 billion in the same period of the previous year. Ordinary profit was ¥32.001 billion, up 59.1% from ¥20.108 billion, while quarterly net income attributable to owners of the parent was ¥23.581 billion, up 65.9% from ¥14.216 billion. Profit grew faster than income, indicating that net interest income and certain other ordinary income items, rather than loan-volume growth alone, pushed up earnings.

The results commentary cited an increase in interest and dividend income driven by higher interest on loans and interest and dividend income on securities, while funding costs also increased because of higher interest on deposits. Gains on negative goodwill and gains from the reversal of loan-loss allowances also boosted other ordinary income, and lower credit-related expenses contributed to net income. Accordingly, the ¥32.001 billion in ordinary profit needs to be viewed by separating recurring net interest income driven by higher interest rates from one-off factors such as negative goodwill and reversals of allowances.

In FY2027-H1, we will look at which of interest on loans and interest and dividend income on securities led the increase in interest and dividend income, and how much the rise in deposit rates was passed through to funding costs. The Q1 summary does not provide a detailed quantitative bridge to ordinary profit excluding these one-off factors. The key to assessing earnings quality will be whether the interim results separately disclose net interest income, net fees and commissions, expenses, credit-related expenses and other ordinary income.