Japan's three megabanks are facing growing earnings pressure after posting mixed results in the fiscal first quarter amid slowing capital market activity, rising U.S. interest rates and the ongoing effects of the COVID-19 pandemic.

Sumitomo Mitsui Financial Group Inc. was the only megabank that posted earnings growth in the three months ended June 30. This was driven by gains in fee income and a 14% loan growth from a year ago. Net income at Sumitomo Mitsui Financial, Japan's second largest megabank by assets, rose 24.2% to ￥252.4 billion from a year earlier, equivalent to about 35% of its target net profit for the full fiscal year ending March 2023.

Meanwhile, Mitsubishi UFJ Financial Group Inc.'s net profit fell 70.3% year over year to ￥113.6 billion in the fiscal first quarter. The decline was mainly due to ￥254.4 billion valuation losses on loans and bonds on the book of MUFG Union Bank in the U.S., which the Japanese lender announced in September 2021 it planned to sell to US Bancorp for US$8 billion. MUFG said Aug. 2 that it expects to book disposal gains of ￥157.9 billion after the sale completes, without saying when this would happen.

Mizuho Financial Group Inc. posted a 36.4% fall in first-quarter net income, largely due to earnings decline in its corporate and institutional finance businesses as well as a lack of tax benefit, which boosted it in the previous fiscal year.

Heightening fears of a global recession will likely hit Japanese megabanks' income from underwriting securities, as companies are likely to slow down in issuing stocks and bonds amid a turbulent capital market, analysts said. The latest wave of COVID-19 infections in Japan would also cast a shadow over the economy, possibly preventing companies from spending on expansions or weakening their loan demand, they said.