KUALA LUMPUR, Sept 8 (Bernama) -- Bursa Malaysia closed almost flat on Tuesday as buying interest rotated away from index heavyweights towards smaller-cap construction stocks, with sentiment affected by geopolitical uncertainty, said an analyst. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) eased 0.39 of a point to 1,714.40 from Monday’s close of 1,714.79. The benchmark index opened 1.65 points lower at 1,713.14 and moved between 1,710.44 and 1,714.50 throughout the trading session. The broader market was almost evenly balanced, with decliners leading gainers 548 to 546, while 598 counters were unchanged, 1,107 were untraded and 25 were suspended. Turnover expanded to 4.13 billion units valued at RM3.14 billion from 3.60 billion units valued at RM2.45 billion on Monday.
Norinchukin Bank, Japan’s largest agricultural bank, reported a substantial loss of ¥413 billion (RM12.57 billion) in the fiscal first quarter. This loss results from the bank's unsuccessful bets on interest rates, leading to the offloading of unprofitable bonds.
Key Points:
Quarterly Performance:
- The loss for the three months ended June 30 contrasts sharply with a net income of ¥63.9 billion in the same period last year.
- The bank has projected a net loss of about ¥1.5 trillion for the fiscal year ending in March 2025.
Investment Strategy:
- Norinchukin is unwinding approximately US$67 billion (RM308.03 billion) in US and European government bonds this fiscal year.
- The bonds became unprofitable due to interest rate hikes by the US Federal Reserve and other central banks, which increased funding costs.
Financial Challenges:
- The bank’s foreign-exchange funding strategy resulted in a negative carry, where interest expenses surpassed bond returns.
- Norinchukin is restructuring its US$361 billion investment portfolio to mitigate losses.
Market Outlook:
- The recent rate hike by the Bank of Japan and potential rate cuts by the Federal Reserve may offer some relief.
- "The negative carry in Nochu’s investment portfolio is starting to improve now as it deleverages and restructures," said Pri de Silva, a senior analyst at Bloomberg Intelligence.
Capital Raising Plans:
- Norinchukin plans to raise about ¥1.3 trillion in fresh capital from member cooperatives, up from an initial plan of ¥1.2 trillion.
- The bank will redeem approximately ¥700 billion in perpetual subordinated loans and issue ¥736 billion in stock with lower dividends by September 30.
- Additionally, it plans to issue ¥600 billion in fixed-term subordinate loans to its members by March 31, 2025.
Impact on Financial Ratios:
- The capital raise is expected to boost the bank's common equity tier 1 ratio by about 2.7% and its total capital ratio by 2.3%.
- Pramod Shenoi, head of APAC research at CreditSights, noted that this capital increase should provide rating agencies with some reassurance, although some capital will be invested in asset classes with higher capital charges than bonds.
Financial Metrics:
- The bank recorded ¥168.7 billion in losses from the sale of securities on a non-consolidated basis, compared to gains of ¥142.2 billion a year earlier.
- Bond holdings decreased to ¥29.8 trillion in June from ¥31.3 trillion three months prior.
- Unrealized losses on bond holdings rose to ¥2.3 trillion in June from ¥2.2 trillion three months earlier.
- Norinchukin's holdings of collateralized loan obligations (CLOs) decreased slightly to ¥7.3 trillion from ¥7.4 trillion in March.
Norinchukin Bank is navigating significant financial challenges due to adverse market conditions and is implementing strategic measures to stabilize its financial position. The bank's future performance will depend on its ability to manage and restructure its investment portfolio effectively.
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