Mitsubishi UFJ Financial Group, Japan’s largest banking group on Tuesday unveiled higher-than-expected net profits for the year just ended, but said it expected virtually no growth this year amid continuing credit woes and a decelerating economy.

MUFG posted net profits last year of Y636.6bn ($6.1bn), which was slightly above market expectations but significantly below last year’s Y880bn, because of a rise in credit costs and losses on equity securities, amid a sharp fall in the Tokyo stock market. In the year to next March, the banking group is forecasting flat net profits of Y640bn.

The results and forecast from MUFG highlight the lacklustre market environment for Japanese banks faced with the impact of the credit market turmoil, the downturn in stock markets and sluggish loan demand in Japan. Gross group profits fell nearly 6 per cent to Y3,512.7bn, reflecting falls in most of its core businesses.

The bank said losses related to subprime investments and other securitised products totalled Y123bn in the year to March 31. MUFG also said it was sitting on unrealised losses of Y313bn from a Y3,300bn portfolio of securitised products.

The extent of its subprime losses was not as bad as expected, but Nobuo Kuro-yanagi, president and chief executive said subprime-related losses this year could reach Y50bn. In addition, MUFG suffered an 18 per cent drop in core operating profits, said Jason Rogers, credit analyst at Barclays Capital in Singapore.

Japanese banks, which had counted on the sale of investment trusts to make up for weak lending growth, have been hit by a downturn in fee income, due to stricter regulations on sales of investment trusts and the market’s sharp downturn over the past year. Mr Rogers warned that MUFG’s “core operating revenue outlook has the potential to disappoint again, while the realisation of further losses on its structured credit portfolio cannot be ruled out.”

“It is important to note that unrealised losses expanded sharply in the fourth quarter, suggesting that further losses could surface in the first half of [this year] depending on market conditions,” Mr Rogers says.

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