Sumitomo Mitsui raises annual profit forecast and announces share buyback

Sumitomo Mitsui Financial Group has raised its annual profit forecast and announced a share buyback after higher interest rates and robust loan demand boosted its first-half results, putting the bank on course for another record year.

Japan’s second-largest lender now expects net income of ¥1.9 trillion ($12 billion) for the year ending March 31, up from its earlier ¥1.7 trillion projection. That compares with the ¥1.87 trillion average of 14 analyst estimates.

Japanese banks are on a record earnings streak thanks to the central bank’s interest-rate hikes, with corporate borrowing showing few signs of slowing down so far. But economic risks are mounting as global investors grow jittery over the sustainability of the artificial intelligence (AI) boom and geopolitical conflicts keep energy prices elevated.

CEO Toru Nakashima said Sumitomo Mitsui is seeing strong loan demand thanks to brisk corporate activity, and he expects business performance to remain robust in the second half. Speaking at a news briefing in Tokyo on Friday, he also warned of the risk of a potential slowdown in the build-out of AI and data centers.

Net income rose 7.5% to ¥1 trillion in the six months ended Sept. 30, driven by solid domestic performance and higher earnings from its global markets business, the bank said in its earnings statement.

The bank announced plans to buy back as much as 1.1% of its shares for about ¥220 billion. It also raised its dividend by ¥10 yen per share to ¥100.

The Bank of Japan has raised rates twice this fiscal year to the highest level in three decades, making loans more profitable for banks. The central bank has flagged the possibility of another hike as soon as December after shifting its focus toward taming inflation rather than trying to sustain it.

Shares in Sumitomo Mitsui fell 0.3% after the Tokyo-based lender announced results during trading hours for the first time. The stock is up 29% this year, trailing Mizuho Financial Group and Mitsubishi UFJ Financial Group.

Under Nakashima, Sumitomo Mitsui is getting into more complex financing deals to boost lending profitability. It’s also seeking to expand securities business through a tie-up with U.S. investment bank Jefferies Financial Group.

Bad-loan costs have remained subdued despite continued tensions in the Middle East and persistent inflation in Japan and abroad. Sumitomo Mitsui’s credit costs for the first half came to about 39% of its annual projection of ¥340 billion.