Mitsubishi UFJ Financial Group (NYSE:MUFG) reported record fiscal 2025 profit and set a higher profit target for fiscal 2026, while management faced analyst questions about a drop in its capital ratio and the size of its planned share repurchase.
Group CFO Togawa told investors on the online earnings call that profits attributable to owners of parent rose by JPY 586.3 billion year over year for the fiscal year ended March 31, 2026. Return on equity on a JPX basis reached 11.3%, exceeding 11% for the first time since MUFG was established, he said. Excluding the impact of equity holdings, ROE was approximately 10.4%, which Togawa described as steady progress toward the bank’s medium- to long-term ROE target of 12%.
Gross Profit Rises on Rates, Fees and Portfolio Effects
MUFG said gross profits increased by JPY 1,290.2 billion year over year on an adjusted basis. Togawa attributed the increase in net interest income to higher yen interest rates, increased lending with improved lending margins and improvements tied to the prior year’s bond portfolio rebalancing.
Net fees and commissions also expanded significantly, driven mainly by domestic and overseas solution businesses and contributions from acquisitions. Togawa said fee income increased by around JPY 300 billion for the second consecutive year.
Net trading profits and net other operating profits were also boosted by special factors. Togawa said MUFG recognized JPY 200 billion of deferred hedging gains and losses recorded in net assets as realized losses after reviewing yen interest rate hedging operations in fiscal 2025. That was offset by a rebound from an approximately JPY 780 billion loss on the sale of debt securities, mainly foreign bonds, following bond portfolio rebalancing in fiscal 2024. He said the hedging review will increase net interest income by approximately JPY 20 billion from fiscal 2026 onward.
General and administrative expenses rose JPY 424.6 billion year over year. Excluding an approximately JPY 100 billion foreign exchange impact and around JPY 120 billion from acquisitions, the increase was about JPY 200 billion. Togawa cited strategic spending in retail and digital banking, AI, cybersecurity and inflation as key factors. Net operating profits rose JPY 865.5 billion year over year.
Loan Growth and Credit Costs Draw Attention
MUFG’s loans increased by approximately JPY 12.3 trillion from the end of fiscal 2024. Excluding government loans in Japan, the increase was approximately JPY 17 trillion, reflecting strong financing needs in Japan and overseas and large high-profitability deals in Japan near the end of the fiscal year.
Togawa said domestic corporate lending spreads continued a gradual uptrend for both large companies and small and midsize enterprises. Overseas lending spreads stabilized somewhat after the replacement of low-profitability assets with higher-profitability assets in the U.S. had “run its course,” though MUFG expects to maintain a gradual improvement trend.
Total credit costs increased by JPY 290.6 billion year over year, but Togawa said the figure was in line with MUFG’s initial forecast of JPY 350 billion despite yen weakness and the acquisition of a subsidiary by Krungsri in Thailand. The nonperforming loan ratio remained low, he said.
Investor questions focused in part on credit risks related to the Middle East and private credit. Togawa said MUFG’s exposure to private credit and the Middle East is limited and focused mainly on low-risk deals. He said MUFG recorded roughly JPY 25 billion in provisions in fiscal 2025 based on a reasonable estimate of potential risks tied to the Middle East. In response to a question from Mizuho Securities’ Matsuno, Togawa said if the Middle East situation worsens and lingers, credit costs could increase by about JPY 100 billion, though MUFG is not currently assuming that scenario.
Capital Ratio Falls Below Target Range
MUFG’s common equity Tier 1 ratio on a finalized, fully implemented Basel III basis, excluding net unrealized gains, stood at 9.2%. That was below the company’s target range and down 1.6 percentage points from the end of March 2025. Togawa said the decline reflected capital allocation, including the investment in Shriram Finance and a significant increase in loans near the end of the fiscal year.
During the question-and-answer session, BofA Securities’ Nakamura asked why the CET1 ratio had fallen more than some investors expected. Togawa said the end-March 2025 ratio of 10.8% was effectively around 10.5% after excluding a positive foreign exchange impact. He said MUFG had expected the Shriram Finance investment to reduce the ratio by about 60 basis points and increased lending to reduce it by 30 to 35 basis points, implying an expected end-March 2026 range of around 9.5% to 9.7%.
Togawa said the final 9.2% ratio reflected several items, including a negative 9-basis-point effect from a JPY 3 trillion upside in loan balance, a negative 4-basis-point effect from higher retained earnings at equity-method investees, mainly Morgan Stanley, and a negative 20-basis-point impact from higher operational risk-weighted assets tied to higher gross profits.
Responding to Daiwa Securities’ Matsuda, Togawa said MUFG must manage its finalized Basel III capital target range with “greater sensitivity” and views the gap between current Basel III and fully implemented Basel III ratios as a buffer for sudden lending demand or external deterioration. He said MUFG aims to return to the lower end of the target range as soon as possible.
Fiscal 2026 Target Calls for Further Profit Growth
MUFG set a fiscal 2026 target for profits attributable to owners of parent of JPY 2.7 trillion, an increase of more than 10% from fiscal 2025. Togawa said growth in net operating profit is expected to remain the main driver. The company is targeting ROE of approximately 12% in fiscal 2026, the final year of its current medium-term business plan.
Togawa said the forecast assumes a Bank of Japan policy rate hike based on market consensus that it could occur in June, and likely no later than July. He said MUFG’s sensitivity to a 25-basis-point policy rate increase is approximately JPY 100 billion in the first year, meaning a four-month delay would shift the impact accordingly.
Asked by Matsuda whether the fiscal 2026 plan is less conservative than prior forecasts, Togawa said MUFG decided internally to present its current most likely scenario and revise downward if the external environment deteriorates. He cited downside risks from a prolonged or worsening Middle East situation, supply chain disruptions and higher costs related to certain issues, while noting that some upside factors were not included because their likelihood remains low.
Dividends Increase; Buyback Set at JPY 100 Billion
MUFG raised its fiscal 2025 annual dividend to JPY 86, up JPY 22 from the prior fiscal year and JPY 12 from its most recent forecast. The projected annual dividend for fiscal 2026 is JPY 96, an additional JPY 10 increase. The company continues to target a dividend payout ratio of around 40%.
MUFG also resolved to repurchase up to JPY 100 billion of common stock in the first half of the fiscal year. Nomura Securities’ Takamiya asked whether that amount was conservative given the company’s profit target and potential recovery in capital. Togawa said MUFG did not intend to set a conservative amount because of uncertainty, but said the CET1 ratio must be brought back toward the lower end of the target range. He said MUFG expects to recover to near that lower end during the first half even with the JPY 100 billion buyback.
For the second half, Togawa said MUFG will assess profit progress, capital needed for growth, loan growth that contributes to future profits and the external environment before deciding on any additional buybacks.
In closing, Togawa said MUFG is “reasonably confident” in its current performance and forecasts, while acknowledging that investors’ primary concerns are the CET1 ratio and share buyback volume. He said new CEO Hanzawa is expected to provide more detail on strategy at an upcoming investor briefing.
About Mitsubishi UFJ Financial Group (NYSE:MUFG)
Mitsubishi UFJ Financial Group, Inc (MUFG) is a Tokyo-based financial services holding company and one of Japan's largest banking groups and among the world's leading financial institutions. The group was formed through the integration of Mitsubishi Tokyo Financial Group and UFJ Holdings and operates a comprehensive suite of banking and financial services for retail, corporate, and institutional clients. MUFG's core banking operations are conducted through its commercial banking arm and a network of domestic and international subsidiaries and affiliates.
MUFG offers a broad range of products and services including commercial and retail banking, corporate and investment banking, global transaction banking, trust banking, asset management, securities and brokerage services, credit cards, consumer finance, leasing and custody services.
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