Japan's three largest banks on Wednesday reported healthy annual profits driven by their overseas operations, reduced costs and investment gains, but warned over the outlook for this year.
Mitsubishi UFJ, the country's biggest lender, said its net profit for the fiscal year to March was down 13.1 percent to 852.62 billion yen ($8.3 billion).
But the result beat the bank's own earlier forecast with the year-on-year drop largely due to a big one-time gain from the year before, it said.
Sumitomo Mitsui Financial Group posted a 53.1 percent jump in net profit for the fiscal year to a record 794 billion yen as its consumer credit business boosted earnings.
Mizuho Financial Group saw a 15.6 percent year-on-year rise to 560.52 billion, partly driven by trading gains.Japanese banks are betting on an improving economy at home where a new government has pledged to kickstart growth, with aggressive central bank easing pushing down the value of the yen.
That, in turn, has helped lift the Tokyo stock market to more than five-year highs as investors pile in.
Japanese banks have traditionally held big stakes in their affiliates and clients to cement ties, so they are vulnerable to stock market declines but can also post big gains when those shares surge.
"As for the future direction of the economy... there are prospects for the economy to be back on course for recovery due to the improved export situation following the depreciation of the yen," Mizuho said in a statement.
Tsuyoshi Ueno, a senior economist at NLI Research Institute, said a soaring stock market was a boon to the banks. But lending at home remains slow -- with thin profit margins -- despite hopes more firms will borrow to bolster their businesses and spur the world's third-largest economy.
"What we should focus on now is whether the banks can increase lending, which is their main business," Ueno said. "They will likely step up their overseas operations."The sector has been ramping up its foreign business at a time when European financial institutions have been forced to scale back as markets fret about the eurozone's fiscal woes.
Mitsubishi said its profit decline was mainly due to a one-time gain that the bank recorded a year before from the conversion of its preferred shares in Morgan Stanley to common shares.
The bank owns a slice of Morgan Stanley after throwing a $9.0 billion lifeline to the troubled Wall Street investment bank in 2008 during the global financial crisis.
On Wednesday the lenders also said their exposure to recession-riddled Europe was minimal, while cutting their full-year profit outlook as key bond-trading gains were set to slow, partly due to the Bank of Japan's huge debt-purchase programme.
Mitsubishi UFJ said it expects its net profit in the year to March 2014 would drop 10.8 percent to 760 billion yen.
Mizuho and Sumitomo said earnings were on track to fall 10.7 percent and 27.0 percent respectively to 500 billion yen and 580 billion yen.