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Fundamental View
AS OF 18 Mar 2025MUFG is the largest of Japan’s three megabanks, and has the most diversified operations by business line and geography. It has also been the most acquisitive until recently.
Core profitability had been weak due to Japan’s ultra-low interest rates and growth; that improved post an efficiency drive and a CEO change in April 2020; the bank has the best international margin and benefits from rising domestic interest rates.
Given its size and systemic importance, MUFG is considered too big to fail, and will be supported by the Japanese government if needed.
Business Description
AS OF 18 Mar 2025- The 2 main banks of MUFG are MUFG Bank (earlier the Bank of Tokyo-Mitsubishi UFJ or BTMU) & Mitsubishi UFJ Trust & Banking. In the early stages of Japan's long banking crisis, Bank of Tokyo merged with Mitsubishi Bank, and in the late stages they absorbed UFJ (former Sanwa Bank & Tokai Bank) while Mitsubishi Trust absorbed Toyo Trust & Nippon Trust.
- The group includes consumer lenders Mitsubishi-UFJ NICOS & ACOM, and securities/IB joint ventures with Morgan Stanley. MUFG invested in Morgan Stanley in 2008 and now has a ~20% stake. In Dec-22, it completed the sale of its US retail and commercial bank, MUFG Union Bank, to US Bancorp.
- It has a majority stake in Thailand's Bank of Ayudhya (now Krungsri), 20% stakes in Vietnam's Vietinbank and Philippines' Security Bank, and 100% of Indonesia's Bank Danamon.
- In August 2019, it acquired Colonial First State from Commonwealth Bank of Australia to strengthen its global asset management business, in 2020 it invested $700 mn in SE Asia's Grab, and more recently has bought Home Credit's Philippine and Indonesian subsidiaries, Link (an Australian pension fund administrator), auto loan companies in Indonesia, Albacore Capital, StanChart's Indonesian retail operations, and an Indian NBFI.
Risk & Catalysts
AS OF 18 Mar 2025Its recent divisional performance has been strong, with the domestic businesses benefiting from higher JGB yields.
Total credit costs are running at JPY 251 bn in 9M24, of which JPY 203 bn is from overseas operations. As MUFG has budgeted for JPY 400 bn of credit costs this year, there could be some serious kitchen sinking in the coming quarter.
The group’s cost-income ratio was previously in the high 60’s a few years ago, but improved efficiency, the sale of MUFG Union Bank in the US, and better revenues has led to this ratio falling to 61% in FY23 and 58% in 9M24; the group targets a 60% cost-income ratio.
MUFG is exposed to Japanese equities through large unrealised gains, but has steadily been decreasing its shareholdings every year. It reduced the MTM impact of rising yields on its $ bond portfolio, as well as the potential impact on its JGB portfolio given the modifications to yield curve controls.
Key Metric
AS OF 18 Mar 2025JPY bn | FY21 | FY22 | FY23 | 3Q23 | 3Q24 |
---|---|---|---|---|---|
Net Interest Revenue/Average Assets | 0.57% | 0.79% | 0.64% | 0.63% | 0.73% |
Operating Income/Average Assets | 1.11% | 1.22% | 1.12% | 1.27% | 1.39% |
Operating Expense/Operating Income | 69% | 65% | 67% | 58% | 58% |
Pre-Impairment Operating Profit / Average Assets | 0.34% | 0.43% | 0.48% | 0.50% | 0.60% |
Impairment charge/Average Loans | (0.30%) | (0.61%) | (0.44%) | (0.31%) | (0.28%) |
ROAA | 0.32% | 0.30% | 0.39% | 0.45% | 0.59% |
ROAE | 6.7% | 6.5% | 8.1% | 9.6% | 11.7% |
CET1 Ratio excluding unrealised securities gains in AOCI | 9.5% | 9.8% | 11.8% | n/a | n/a |
CreditSight View Comment
AS OF 15 Apr 2025MUFG is the largest of the megabanks with more diversified business lines. Digitalisation and operational efficiency improvements, in addition to higher rates in Japan and the US, has led to much better results in 9M24. Lending discipline has lifted international margins, which are now well higher than the other two. Its ~20% shareholding in Morgan Stanley has been a boon. Acquisitions have become more targeted. The CET1 ratio on a post Basel 3 basis ex security gains has the highest buffer (2.7%) compared to the other megabanks, its $ liquidity is also the best amongst its peers, and government support is assured. NPLs have jumped because of certain Americas exposure. Govt. support is assured.
Recommendation Reviewed: April 15, 2025
Recommendation Changed: January 27, 2025
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