Suruga Bank Ltd. FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ended March 2026, results showed substantial top-line and bottom-line growth with Ordinary Income (Revenue) of 1,099.1B (YoY +188.2B +20.6%), Ordinary Income of 355.2B (YoY +93.6B +35.7%), and Net Income of 340.2B (YoY +142.4B +71.9%). The Banking segment accounted for 91.7% of Ordinary Income, with expanded interest income (781.3B, YoY +97.0B) as the primary driver. Ordinary income margin improved to 32.3% (up +3.6pt from 28.7% a year earlier), and net margin improved to 31.0% (up +9.3pt from 21.7%), indicating marked profitability improvement. ROE was 10.5% (improved +3.7pt from 6.8% a year earlier), and EPS was ¥198.55 (from ¥106.84, +85.8%), showing significant improvement in shareholder return metrics.

Drivers of Performance

[Revenue] Ordinary Income was 1,099.1B (YoY +20.6%), marking a second consecutive year of revenue growth. Breakdown: interest income expanded to 781.3B (from 684.3B, +14.2%), loan interest was 668.7B (from 604.8B, +10.6%), and securities interest/dividends were 43.7B (from 29.6B, +47.6%), all increasing. Deposit interest was 76.9B (from 25.4B, +202.4%) and rose materially, but the improvement in yield on invested assets during the rising-rate environment exceeded the increase in interest expense. Fee income balance was -20.1B (revenues 92.5B, expenses 94.5B), slightly negative, leaving non-interest income strengthening as an area for improvement. Other ordinary income was 36.4B (from 41.3B, -11.9%). By segment, Banking was 1,008.7B (91.7% share) and Others 90.7B (8.3%), indicating continued high concentration in Banking.

[Profit & Loss] Ordinary expenses were 743.9B (from 649.3B, +14.6%) and increased but remained below the revenue growth pace. SG&A was 365.4B (from 377.1B, -3.1%), improving cost efficiency. Other ordinary expenses rose sharply to 118.5B (from 55.3B, +114.3%), including credit-cost impacts such as additions to loan-loss reserves. Extraordinary items were minor: extraordinary gains 2.3B, extraordinary losses 4.7B (including impairment losses 1.1B), net -2.4B. Pre-tax income was 352.8B (from 247.2B, +42.7%), and corporate taxes were 5.6B (effective tax rate 1.6%), extremely low, with deferred tax asset releases and reversals materially boosting final profit. Consequently, Net Income rose substantially to 340.2B (YoY +71.9%), producing a clear revenue-and-profit expansion profile.

Segment Analysis

The Banking segment recorded Ordinary Income of 1,008.7B (YoY +18.8%) and segment profit of 345.3B, comprising approximately 97.1% of consolidated profit and serving as the core business. Other segments (consumer finance, leasing, back-office processing, credit card, guarantees, etc.) posted Ordinary Income of 90.7B and segment profit of 11.1B, contributing roughly 3.1% of profit. The Banking segment margin was extremely high at 34.2%, driven by expanded interest income and cost containment. The Others segment margin was 12.2%, lower than Banking but providing stable profit contribution.

Key Financial Metrics

[Profitability] ROE was 10.5% (prior year 6.8%), showing substantial improvement. Net margin was 31.0% (up +9.3pt from 21.7%), and Return on Assets (Ordinary Income / Total Assets) was 1.0% (prior year 0.7%), both improved. As a banking KPI, estimated Net Interest Margin (NIM) was about 2.3% (Net interest income 704.3B ÷ average earning assets), remaining high among regional banks. Cost-to-Income Ratio (CIR) was about 52.7% (SG&A 365.4B ÷ gross profit 693.4B), improving from an estimated 58.1% last year but not yet below the 50% threshold. [Cash Quality] Operating Cash Flow / Net Income was -4.35x (Operating Cash Flow -1,481.4B ÷ Net Income 340.2B), a large negative, as increases in loans and securities caused cash outflows and pressured cash generation. Operating CF subtotal (before working capital changes) was -1,468.4B; given the nature of banking, structural negative cash flows accompany balance-sheet expansion. [Investment Efficiency] CapEx was 13.6B, depreciation 39.3B, yielding a CapEx/Depreciation ratio of 0.35x, restrained. Total asset turnover was 0.031x (from 0.026x), improving asset productivity. [Financial Soundness] Equity Ratio was 9.1% (up +0.6pt from 8.5%), above the Basel regulatory minimum of 8% but below the industry soundness benchmark of 12%. Loan-to-deposit ratio was about 75.0% (2,398.8B ÷ 3,197.2B), in an appropriate range with no excessive maturity mismatch. Liquidity assets (cash & deposits 4,340.0B, securities 4,190.8B, call loans 1,300.0B) totaled approximately 9,830.8B, providing a substantial cushion against deposits of 3,197.2B.

Cash Flow Analysis

Operating Cash Flow was -1,481.4B (improvement from -2,084.8B a year earlier), driven mainly by increases in loans (year-end change +2,059.6B) and securities (same +901.2B) causing cash outflows. Operating CF subtotal was -1,468.4B, which is before deducting corporate tax payments of 13.0B. Investing CF was -816.9B (from -564.5B), with CapEx 13.6B and intangible asset additions 16.4B, indicating restrained tangible and intangible investment. Free Cash Flow was -2,298.3B (Operating CF + Investing CF), a sizeable negative, and midterm shareholder returns (dividends 65.0B + share buybacks 176.2B) were not funded by Free Cash Flow. Financing CF was -241.3B, primarily due to treasury stock purchases -176.2B and dividend payments -65.0B. Given the banking model, funding via deposits and market funding can provide liquidity, so short-term funding resilience is maintained; however, Operating CF/Net Income -4.35x and FCF/Net Income -6.75x indicate very weak cash conversion, and cash backing of profits is low.

Quality of Earnings

Ordinary Income of 355.2B is largely driven by recurring factors such as expanded interest income, and extraordinary items were minor (extraordinary gains 2.3B, extraordinary losses 4.7B, net -2.4B), so one-off influences are limited. The effective tax rate is extremely low at 1.6% (down sharply from 18.3% a year earlier), likely due to deferred tax asset releases and reversals boosting final profit. The gap between Ordinary Income and Net Income is small, and excluding tax effects the earnings quality is broadly recurring. Comprehensive income was 517.2B, well above Net Income of 340.2B, with unrealized gains on securities 122.2B and actuarial differences related to retirement benefits 47.8B bolstering equity. Operating CF of -1,481.4B is far below Net Income, with Operating CF/Net Income -4.35x and estimated OCF/EBITDA (Operating CF ÷ [Net Income + depreciation, etc.]) about -3.9x, indicating weak cash backing. However, given the banking business model, cash outflows linked to balance-sheet expansion are structural and do not immediately indicate degraded earnings quality, though improving cash generation remains a long-term challenge.

Forecasts & Guidance

Full-year guidance projects Ordinary Income 475.0B (YoY +33.7%), Net Income 320.0B (YoY -5.9%), EPS forecast ¥187.72, and dividend forecast ¥30.00. H1 results were Ordinary Income 355.2B, representing 74.8% of the full-year Ordinary Income guidance, and Net Income 340.2B, or 106.3% of the full-year Net Income guidance—Net Income has already exceeded the full-year forecast. The Net Income overperformance appears primarily due to the lower effective tax rate, and the company expects normalized tax burdens in H2, leading to a projected decline in profit. The dividend forecast of ¥30.00 per annum contrasts with actual dividends of interim ¥22.00 + year-end ¥38.00 = annual ¥60.00, indicating a significant upward revision and a strengthened shareholder-return stance.

Shareholder Returns

Dividends were interim ¥22.00 and year-end ¥38.00 for an annual ¥60.00 (versus prior-year annual ¥14.50 plus the implemented increase), a substantial increase. Payout Ratio was 27.1% (based on total dividends of approximately 92.0B against Net Income 340.2B), at a sustainable level. Treasury stock purchases amounted to 176.2B, and combined with dividends of 65.0B total shareholder returns were 241.2B; Total Return Ratio was approximately 70.9% relative to Net Income 340.2B, a high level. However, Free Cash Flow was -2,298.3B, a large negative, so the return funding relied not on FCF but on the banking liquidity/funding structure (deposits, etc.) and regulatory capital headroom. With an Equity Ratio of 9.1%, future share buyback sizes will require nimble management that considers capital buildup and the credit-cost cycle.

Risk Factors

1. Interest rate risk (IRRBB): Deposit interest rose sharply to 76.9B (from 25.4B, +202.4%), and if deposit repricing outpaces loan rate increases during future rate rises, NIM compression risk exists. The securities portfolio expanded to 4,190.8B (YoY +27.4%), increasing mark-to-market loss risk in a rising-rate environment.

2. Upside credit-cost risk: Loan-loss reserves were -766.3B (from -1,017.6B), moving toward releases and temporarily boosting profits, but a reversal risk exists upon future credit events. Loans expanded to 2,398.8B (YoY +9.4%), so portfolio concentration and borrower credit quality warrant monitoring.

3. Capital buffer constraints: Equity Ratio 9.1% exceeds the regulatory minimum of 8% but falls short of the industry soundness benchmark of 12%. Sustaining a Total Return Ratio of about 71% while increasing capital requires stable profitability and retained earnings. Capital resilience under market or credit shock would be moderate.

Industry Benchmark (Reference, Company Analysis)

Profitability & Returns

Net margin is 19.1pt above the industry median, indicating a high-profitability profile in the upper quartile.

Growth & Capital Efficiency

Revenue growth outpaces the industry median by 10.6pt, driven by improved yields on invested assets in the rising-rate environment.

※Source: Company compilation

Key Points from the Results

1. Revenue expansion and NIM improvement in a rising-rate environment: Net interest income was 704.3B (YoY +65.9B +10.3%), and estimated NIM of about 2.3% remains high among regional banks. While normalization of rates could support loan-deposit spread expansion, deposit repricing pace and securities valuation volatility are risk factors. Further CIR improvement toward below 50% is the next efficiency milestone from the current ~52.7%.

2. Balancing high shareholder returns and capital policy: Total Return Ratio of about 71% indicates an aggressive return stance, but Equity Ratio of 9.1% falls short of the 12% industry benchmark, making the balance between capital accumulation and returns a key issue. Comprehensive income of 517.2B (well above Net Income 340.2B) is supported by unrealized securities gains of 122.2B and other items, aiding capital accumulation while markets remain favorable; however, valuation loss risk on market reversal should be noted.

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This report is an earnings analysis document automatically generated by AI analyzing XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by our firm based on public financial statements. Investment decisions should be made at your own responsibility and, if necessary, after consulting specialists.