Rakuten Bank (5838) FY2027 Q1 Earnings Report

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Executive Summary

Although both ordinary revenue and profit increased by double digits, the profit margin declined from the same period of the previous year due to a sharp increase in funding costs, placing the Company at a point where the quality of its revenue and profit growth must be assessed. Ordinary revenue was ¥78.425B (+36.3% YoY), ordinary income was ¥30.209B (+26.1%), and quarterly net income attributable to owners of the parent was ¥20.965B (+24.5%). While growth in interest and dividend income and fees and commissions drove revenue growth, ordinary income margin declined to 38.5% from 41.6% in the same period of the previous year, as interest on deposits increased 92.1% YoY.

Factors Affecting Performance

【Revenue】Ordinary revenue increased 36.3% YoY to ¥78.425B. Of this amount, interest and dividend income increased 44.7% YoY to ¥63.095B, driven by interest on loans of ¥30.679B (+40.2%) and interest and dividends on securities of ¥8.280B (+47.5%). Fees and commissions also grew 13.0% to ¥13.521B, indicating expansion in revenue sources other than interest income. Loans outstanding increased 2.9% YoY to ¥6.117153T, while deposits increased 3.8% to ¥13.541517T, demonstrating continued expansion of the customer base.

【Profit and Loss】Funding costs increased 74.8% YoY to ¥19.344B, including interest on deposits of ¥14.838B, up 92.1%. As the increase in funding costs exceeded the growth in interest and dividend income, ordinary income margin declined to 38.5%, approximately 3.1pt lower than in the same period of the previous year. General and administrative expenses were ¥16.752B (+28.6%), below the revenue growth rate, indicating that deterioration on the cost side was limited. No extraordinary gains or losses were recorded. Ordinary income increased 26.1%, while net income attributable to owners of the parent increased 24.5%, resulting in higher revenue and profit.

Segment Analysis

The Group has a single reportable segment, Banking Business, and segment-level revenue and profit-and-loss data have not been disclosed.

Key Financial Indicators

【Profitability】Ordinary income margin was 38.5%, down approximately 3.1pt from 41.6% in the same period of the previous year, while net profit margin also narrowed to 26.7% from 29.3%, a decrease of approximately 2.6pt. The primary factor was the increase in funding costs, which exceeded the increase in interest and dividend income.【Cash Quality】Both extraordinary gains and extraordinary losses were ¥0.00B, and the divergence between ordinary income and net income and profit before tax was almost entirely attributable to income taxes (¥9.60B, effective tax rate of approximately 31.8%).【Investment Efficiency】Annualized ROE was high at 19.7%, but this was primarily attributable to the use of financial leverage. The Company’s structure is one in which a high degree of leverage compensates for its net profit margin and low asset turnover. Net assets increased 7.4% YoY, while financial leverage declined from approximately 41.6x in the same period of the previous year.【Financial Soundness】The equity ratio was 2.5%, improving from 2.2% in the same period of the previous year. While total assets declined 0.6% YoY to ¥16.486390T, deposits increased 3.8% to ¥13.541517T and loans increased 2.9% to ¥6.117153T. The loan-to-deposit ratio was approximately 45.2%, indicating ample liquidity capacity.

Cash Flow Analysis

As cash flow statement data have not been disclosed, funding trends are analyzed based on changes in the balance sheet. Borrowings declined 20.5% YoY to ¥2.234500T, reducing reliance on market-based funding, while deposits increased 3.8%, indicating a shift in the funding mix toward deposits. Cash and due from banks declined 9.2% YoY to ¥3.759512T; however, total highly liquid assets, including securities and call loans, amounted to ¥6.403194T, equivalent to 47.3% of deposits, maintaining a substantial level. Net assets increased 7.4% YoY to ¥418.294B, with the internal accumulation of quarterly profit contributing to expansion of the capital base.

Quality of Earnings

Both extraordinary gains and extraordinary losses for the current period were ¥0.00B. The transition from ordinary income to net income was primarily attributable to adjustments for income taxes (¥9.60B, effective tax rate of approximately 31.8%), with no distortion of earnings from temporary factors. In terms of the composition of non-operating revenue, interest and dividend income of ¥63.095B was the core revenue source, accounting for 80.5% of ordinary revenue, while fees and commissions of ¥13.521B contributed to diversification of revenue sources. On the other hand, funding costs increased 74.8% YoY, exceeding the 44.7% growth in interest and dividend income, meaning that the quality of profit growth is strongly affected by rising deposit costs. Comprehensive income was ¥21.542B, exceeding net income of ¥20.604B, with foreign currency translation adjustments (+¥1.14B) serving as an upward factor. Meanwhile, the negative balance of valuation differences on securities remained at the same level as in the same period of the previous year and warrants attention as a factor affecting capital.

Earnings Forecast and Guidance

Q1 progress against the full-year company forecast was 22.8% for ordinary revenue, 24.0% for ordinary income, and 23.8% for net income attributable to owners of the parent, generally close to the standard quarterly progress rate of 25%. The full-year ordinary income forecast calls for a 22.0% YoY increase, implying that achievement of the full-year target is based on a pace slightly below the 26.1% profit growth recorded in Q1. Although the earnings forecast was revised during the quarter, there was no revision to the dividend forecast. Going forward, the key focus for achieving the forecast will be whether growth in interest and dividend income can absorb the increase in deposit costs.

Shareholder Returns

Per-share dividends were ¥0 for both the current period and the same period of the previous year, and the dividend forecast was also disclosed as ¥0. Based on the available data, no dividend payment was confirmed, and treasury shares were also 0 thousand shares, a negligible amount relative to 174,511 thousand shares outstanding. No share repurchases were confirmed.

Risk Factors

1. Risk of rising interest rates and deposit costs: Interest on deposits increased 92.1% YoY, exceeding the 44.7% growth in interest and dividend income. If the deposit beta continues to rise, it may put pressure on NIM and profit margins.

2. Sensitivity risk arising from a low-NIM structure: The NIM level indicated by the quality alert is below the generally accepted soundness benchmark for the banking industry. Under a low-margin structure, small fluctuations in asset yields and funding costs have a relatively significant impact on earnings.

3. Credit cost and market price volatility risk: Loans amounted to ¥6.117153T and securities amounted to ¥2.242682T. An increase in the allowance for loan losses due to deterioration in the credit environment or a decline in valuation differences on securities accompanying rising interest rates could affect capital.

Industry Benchmarks (For Reference; Compiled by the Company)

Profitability and Returns

For the Company’s net profit margin of 26.3%, the relative positioning cannot be determined due to insufficient industry median data.

Growth and Capital Efficiency

For the Company’s revenue growth rate of 36.3%, the relative positioning cannot be determined due to insufficient industry median data.

※Source: Compiled by the Company

Key Earnings Highlights

1. Ordinary revenue increased 36.3% YoY, while net income attributable to owners of the parent increased 24.5%, maintaining strong growth. However, ordinary income margin declined by approximately 3.1pt, making the compression of profit margins relative to the pace of revenue growth a key point of focus in the results.

2. The 20.5% YoY reduction in borrowings and decline in financial leverage from approximately 41.6x to 39.41x represent a structural shift toward a funding mix centered on deposits.

3. Q1 progress against the full-year forecast was 24.0% for ordinary income and 23.8% for net income attributable to owners of the parent, both at standard levels. Whether the growth rate of funding costs continues to exceed the growth rate of interest and dividend income will be an important point to monitor for full-year progress.

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional as necessary.

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