7 major Japanese banks need to improve, stabilize profitability: S&P.

TOKYO, Aug. 10 Kyodo

Major Japanese banks and banking groups need to improve and stabilize their profitability in order to chase higher credit ratings, Standard & Poor's said Wednesday.

Analyzing seven major banks' and banking groups' earnings reports for the April-June first quarter of fiscal 2005, the U.S. credit-rating agency said all saw net profits due to reduction of credit costs, though core profits remained stagnant.

Overall revenue of the industry surged 63.1 percent from a year before to 779.1 billion yen, but core operating profit decreased at all banks except for Sumitomo Trust & Banking Co., which had increased profit contributions from fee income and a leasing company acquired in April.

As for fee income, all but Resona Holdings Inc., which does not disclose relevant figures, have shown a year-on-year increase of 9.1 percent to 465 billion yen stemming from real estate brokerage and brisk sales of investment trusts and insurance products to individuals. S&P predicts the uptrend in the areas will continue.

The outstanding balance of bad loans at six of the seven banks and banking groups dropped by between 3 percent and 14 percent, while that of Chuo Mitsui Trust and Banking Co. inched up, S&P said.

S&P expects the banks' credit costs will not surge in the near future but could rise under extraordinary circumstances, such as unexpected default of large borrowers or the reclassification of borrowers upon the merger of Mitsubishi Tokyo Financial Group Inc. and UFJ Holdings Inc.