Strong 1Q profit growth marks a good start toward achieving the full-year plan, but credit costs are the focus for the second half

In FY2027-1Q, ordinary income was ¥9,066 million, up 27.5% year on year, ordinary profit was ¥2,634 million, up 58.2%, and net income attributable to owners of the parent was ¥1,791 million, up 58.6%. The year-on-year increase in ordinary profit was ¥968 million and the increase in net income was ¥662 million, making this a quarter in which revenue growth flowed through to earnings rather than a period of marginal improvement.

The simple progress rate against the full-year forecast was 39.9% for ordinary profit, calculated as ¥2,634 million divided by ¥6,600 million, and 39.8% for net income, calculated as ¥1,791 million divided by ¥4,500 million. Since 1Q represents one-fourth of the full year, this can be viewed arithmetically as a good start. However, the company sets its full-year plan on the assumption of quarterly seasonality and fluctuations in revenue items. Accordingly, rather than judging the potential for an upside to the full-year forecasts solely from the 1Q progress rate, the first test will be whether ordinary profit of ¥3,300 million and net income of ¥2,250 million can be secured on a 2Q cumulative basis.

The factors behind the 1Q earnings growth were higher ordinary income, driven by increases in interest and dividend income and gains on sales of shares and other securities. At the same time, interest on deposits and losses on sales of government bonds and other bonds also increased, meaning that not all profit was generated by recurring lending income. The company has also maintained its earnings forecasts after taking into account the possibility of future credit costs. It additionally recorded ¥1,650 million in provisions for loan losses in FY2026, and a renewed increase in credit costs could cause the 1Q earnings progress to slow in the second half.

At the next earnings announcement, it will be necessary to review not only cumulative 2Q ordinary profit and net income, but also any additional provisions for loan losses, risk-monitored loans, and changes in expected loss rates for normal and watch-list borrowers. The bank does not disclose sales or full-year operating profit forecasts in its earnings summary, so an operating-profit progress rate cannot be calculated as it can for a typical manufacturing company. It is therefore appropriate to focus the assessment on ordinary profit, net income, net interest income and credit costs.