TOKYO (Nov 13): Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group on Friday raised their profit forecasts to new record highs for the financial year but flagged the risks from a potential slowdown in investment into AI data centres.
Profits at Japan's three largest banking groups have soared as Japan emerges from decades of deflation, spurring corporate demand for loans to fund growth investments, capital expenditure and mergers and acquisitions, while higher interest rates have raised lending margins.
SMFG boosted its annual earnings forecast to ¥1.9 trillion (US$11.9 billion or RM48.6 billion) from ¥1.7 trillion and expanded its share buyback programme by ¥220 billion, bringing the total shares to be bought up to ¥400 billion for the financial year that ends in March 2027.
Net profit over the July to September quarter was ¥501.8 billion, down 10% from a year earlier, when it registered a gain of ¥94 billion on the sale of its stake in India's Kotak Mahindra Bank.
Mizuho also raised its annual profit forecast to ¥1.6 trillion from ¥1.4 trillion and doubled the size of its share buyback programme this financial year to ¥400 billion. The company generated ¥473.6 billion in net profit over the July to September period, 19% higher than the year before.
Quarterly net profit at MUFG rose 10% to ¥821.5 billion, and it raised its annual profit forecast to ¥2.8 trillion from ¥2.7 trillion.
A slowdown in data centre investment could hit the Japanese and global economies and impact SMFG's results over the next six months, chief executive officer Toru Nakashima said at a press briefing.
"This year we have adopted stricter standards on extending credit for data centre financing, for instance restricting ourselves to just hyperscalers with high credit standing," Nakashima said.
Mizuho CEO Masahiro Kihara flagged greater restrictions on data centre construction in the US as a tail risk as the results of the midterm elections last week brought sweeping wins for the Democratic Party, which could slow projects and so bring about higher development costs.
Fears of overheating in global data centre investment and rising political opposition have led to a sharp decline in technology stocks in recent weeks as investors reassess their exposure to the vast sums flowing into AI infrastructure.
However, the banks said they have limited direct exposure to data centre investment as a proportion of their overall lending activities.
MUFG, which regularly tops league tables for US project finance — the preferred financing method for many data centre projects — said that its exposure to data centre credit stood at ¥3.3 trillion, compared to total credit exposure of ¥180 trillion.
The resignation of the chief executive of Nvidia, Jensen Huang, over extramarital affairs has sparked concern over the chipmaker's continued ability to spearhead data centre projects as it both supplies chips and finances the infrastructure built around them.
"The impact of Huang stepping down is difficult to see at present and whether it leads to a slowdown in data centre investment will depend on the new management," SMFG's Nakashima said.
"Personally, I don't think their stance will change that significantly," he added.
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