Strong regional earnings boosts MUFG’s profits

In case of trouble, MUFG has a high likelihood of getting government support.

MUFG’s profitability is expected to gradually improve whilst the group as a whole will maintain low asset risk, adequate capital, and strong funding.

The bank’s recent moves to strengthen its solution offering capabilities has resulted in historically high fees and commissions in the latest fiscal year, Moody’s Japan K.K. said in its latest commentary report, where it maintained a ‘stable’ outlook for both MUFG and its banking subsidiary MUFG Bank.

Strong earnings contribution from subsidiary banks across APAC also support profits.

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MUFG's 22.5% ownership stake in Morgan Stanley, an equity method affiliate, is an important earnings contributor, Moody’s said. Income from Morgan Stanley represented JPY317.3b, or 28% of MUFG's consolidated net income in fiscal 2022.

Rising domestic interest rates will further improve MUFG’s net interest income through margin expansion. This will outweigh increases in loan-loss provisions for rising loan delinquencies.

In case the institution runs into trouble, MUFG likely has a deux ex machina in the form of the Japanese government, with a very high probability of receiving support from authorities, Moody’s added. 

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Japan's Deposit Insurance Act specifically allows for the government to preemptively inject liquidity and capital into financial institutions before the point of non-viability to maintain systemic stability, the ratings agency noted.

Moody’s made this assumption given the group’s importance to Japan’s financial system. MUFG is Japan’s largest financial group in terms of overall assets.