Resona bolsters net profit forecast 173% on tax effects accounting.
Resona Holdings Inc. on Thursday revised sharply upward its group net profit forecast for the April-September first half of fiscal 2006, citing the favorable effects of deferred tax assets accounting rules.
Consequently, the parent firm of Resona Bank bolstered the forecast for the midterm net profit by 172.7 percent over the previous forecast released on May 23 to 450 billion yen, up 285.0 billion yen.
It said it will release a full-year net profit forecast as well as other performance projections on Nov. 22 when it will release the results for the six-month period.
A DTA, a tax receivable that a bank is legally allowed to book on its balance sheet as part of its capital, arises from loan-loss provisions a bank puts up against loans to troubled borrowers in a given fiscal year, and which tax authorities refuse to recognize as tax-deductible expenses for the period.
When the borrowers go bust, thus making it clear that the loans are no longer recoverable, tax authorities recognize the provisions as losses that a bank is allowed to deduct from taxable income.
A bank is allowed to book a DTA amount equal to the sum of taxable income which it can reasonably expect for the subsequent five years.
In fiscal 2005, Resona Holding limited its DTA amount to a sum equal to its projected one-year taxable income, the holding company said.
But Resona Holding conducted the upward revision in the net profit forecast for the first half of fiscal 2006, as the firm has decided that it can now book five years of taxable income as its DTA sum, just as other major banks do, it said.
In making the revision, the holding company said it booked 250 billion yen as the DTA sum ''in view of the certainty of our fresh estimate of taxable income'' in tandem with brighter projections for its revenues.
In fiscal 2003, Resona Holdings, then suffering from large amounts of bad loans, slashed its DTA sum to an amount equal to three years of taxable income from five years' worth, after its auditing firm refused to certify Resona's forecast for future revenues and thus the accuracy of its DTA estimate.
In closing books for the first half of fiscal 2003, the holding company again cut the DTA sum to an amount equal to its one-year taxable income projection.
But the company said Thursday it has decided to return the DTA sum to the amount equivalent to five years of projected taxable income, because it can now expect robust revenues in the coming years.