Sumitomo Mitsui Financial Group (SMFG), Japan’s second-largest banking group, posted a record annual profit of 1.18 trillion yen, despite facing a 75% slump in its fourth-quarter net profit.

Fourth-Quarter Performance

In the January-March 2025 quarter, SMFG generated a net income of 42 billion yen ($285.8 million), a sharp decline from 170 billion yen in the same period a year before. This drop was largely attributed to the broader economic and geopolitical factors that impacted corporate activities and financial performance.

Strong Loan Demand Drives Record Profit

The record annual profit was driven by robust loan demand, particularly from Japanese corporations. As Japan emerged from deflation, companies increased borrowing to fund overseas expansion, mergers and acquisitions, and capital investments, amid a shrinking workforce. SMFG also benefitted from the Bank of Japan’s decision to end its negative interest rate policy in March 2024, which helped increase profit margins for the bank.

Forecast and Challenges

Despite the strong annual performance, SMFG expressed concerns over U.S. President Donald Trump’s trade policies, specifically the sweeping tariffs imposed in April 2025. CEO Toru Nakashima noted that the bank had revised its forecasts, factoring in a 100 billion yen hit to its bottom line for the current financial year due to these tariffs. As a result, corporate activities like M&As and capital raising may be delayed as companies wait for clarity on the tariff situation.

However, Nakashima emphasized that Japan’s emerging growth trends, such as higher wages and increased investment, are expected to continue as the country moves away from deflation.

Economic Outlook

In its revised outlook, SMFG lowered its Japanese GDP growth forecast for the financial year to 0.4%, down from 1.1%. The group also expects no further interest rate hikes from the Bank of Japan before March 2026.

SMFG is the first of Japan’s “megabanks” to report earnings, with Mitsubishi UFJ Financial Group and Mizuho Financial Group set to announce their results later this week.