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(Bloomberg) -- As Japan’s biggest bank heads for record profit that surpasses even its own projections, one thing is on the mind of its chief financial officer: what to do with all those extra earnings and how to make the good times last.
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Mitsubishi UFJ Financial Group Inc. reported results on Tuesday that beat estimates, propelling the lender closer to its goal of an unprecedented ¥1.75 trillion ($11 billion) in net income for the year ending March 31. Rising interest rates at home, a buoyant stock market and a weak yen are fueling profits, propelling MUFG’s share price to levels unseen since its 2001 listing.
Yet CFO Jun Togawa recognizes that more needs to be done to sustain profit growth and catch up with global rivals to attract investors.
“We need to make growth investment constantly,” Togawa, 57, said in an interview. “We will do that considering the balance with shareholder returns.”
The Tokyo-based bank has more room to invest in the business, given that profits and return on equity are set to exceed goals envisioned in its medium-term business plan ending March 2027, he said.
Net income totaled a record ¥1.749 trillion in the nine months ended Dec. 31, virtually reaching its annual target with a quarter to spare. The bank said it also expects to exceed ROE of 9%.
The Bank of Japan’s rate hikes are spurring lending income that was squeezed by rock-bottom borrowing costs for more than a decade. Japanese banks have also been booking gains from sales of stakes in client companies as part of a campaign to cut cross-shareholdings. And the yen’s 26% decline versus the dollar in the past three years has boosted the value of earnings abroad, where MUFG has been expanding.
But Togawa said the bank is working to build up profit drivers that put it on a sustainable growth footing even without the help of these tailwinds.
“One of the keys to enhancing ROE is how much we can expand fee revenue, which doesn’t use our balance sheet,” he said. The bank’s investment in Asia’s financial technology startups is also expected to boost its future profits, he added.
Investors have been snapping up Japanese bank stocks. MUFG’s shares have climbed 39% in the past 12 months, taking its market capitalization to about $150 billion, trailing only Toyota Motor Corp. as the country’s most valuable company.