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Wednesday, May 23, 2007

CONSUMER LENDER WOES

Mizuho group profit falls 4.4% on Orient's losses


Staff writer

Mizuho Financial Group said Tuesday its group net profit dropped 4.4 percent to 621 billion yen in the business year to March on losses incurred by consumer lender Orient Corp., Mizuho's affiliate known for its Orico card.

"A large portion of the losses we posted was due to Orico," President Terunobu Maeda said at a news conference. But he declined to comment on how deeply Orico's losses affected Mizuho's earnings report for fiscal 2006.

Mizuho is the latest big-name bank to see its profits plunge due to losses posted by an affiliated consumer lender.

On Monday, Sumitomo Mitsui Financial Group posted a net profit of 441.4 billion yen, down 35.7 percent, for fiscal 2006 due to losses from consumer lender affiliate Promise Co.

Consumer lenders have been hit hard since a Supreme Court ruling in January 2006 effectively invalidated so-called gray-zone rates, prompting calls from consumers for refunds.

The Interest Rate Restrictions Law caps rates at 15 percent to 20 percent depending on loan size, while the Investment Deposit and Interest Rate Law allows rates of up to 29.2 percent if borrowers give written consent.

Facing demands from borrowers for refunds for excessive interest rates, lenders have been forced to amass reserves to cover losses from the refunds.

On May 2, Mizuho Corporate Bank and Mizuho Bank provided 290 billion yen in capital to Orient to cover losses.

On a consolidated basis, Mizuho's capital adequacy ratio was 12.48 percent at the end of March, based on new standards set by the Bank for International Settlement.

The ratio was 11.62 percent in the previous year based on the previous standard. A ratio of at least 8 percent is required for banks operating internationally.

The total amount of nonperforming loans of the three banks in the financial group increased 193.9 billion yen to 1.25 trillion yen at the end of March.

The financial group said its group net profit will increase 20.7 percent to 750 billion yen in the current fiscal year, which ends next March, although profit from its market division will decrease amid a possible interest rate hike.



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