Japan's megabanks raise annual earnings forecasts, flag data centre slowdown risk

TOKYO, Nov 13 : Sumitomo Mitsui Financial Group and Mizuho Financial Group on Friday raised their profit forecasts for the financial year but flagged the prospect of a slowdown in investment into AI data centres.

SMFG boosted its annual earnings forecast to 1.9 trillion yen from 1.7 trillion yen and expanded its share buyback programme as corporate lending demand from local firms remained strong and higher domestic interest rates increased lending margins. 

Net profit over the July to September quarter was 501.8 billion yen ($3.14 billion), down 10 per cent from a year earlier, when it registered a gain of 94 billion yen on the sale of its stake in India's Kotak Mahindra Bank.

Mizuho also raised its annual profit forecast to 1.6 trillion yen from 1.4 trillion yen and doubled the size of its share buyback programme this financial year to 400 billion yen. The company generated 473.6 billion yen ($2.96 billion) in net profit over the July to September period, 19 per cent higher than the year before.

A slowdown in data centre investment could hit the Japanese and global economies and impact SMFG's results over the next six months, Chief Executive Officer Toru Nakashima said at a press briefing.

"This year we have adopted stricter standards on extending credit for data centre financing, for instance restricting ourselves to just hyperscalers with high credit standing," Nakashima said.

Mizuho CEO Masahiro Kihara flagged greater restrictions on data centre construction in the US as a tail risk as the results of the midterm elections last week brought sweeping wins for the Democratic Party, which could slow projects and so bring about higher development costs.

Fears of overheating in global data centre investment and rising political opposition have led to a sharp decline in technology stocks in recent weeks as investors reassess their exposure to the vast sums flowing into AI infrastructure.

The resignation of the chief executive of Nvidia, Jensen Huang, over extramarital affairs has sparked concern over the chipmaker's continued ability to spearhead data centre projects as it both supplies chips and finances the infrastructure built around them.

"The impact of Huang stepping down is difficult to see at present and whether it leads to a slowdown in data centre investment will depend on the new management," SMFG's Nakashima said.

"Personally, I don't think their stance will change that significantly," he added.

SMFG increased its share buyback programme by 220 billion yen, bringing the total shares to be bought up to 400 billion yen for the financial year that ends in March 2027.