SMFG raises profit forecast, flags risk from data centre slowdown

Sumitomo Mitsui Financial Group has boosted its annual earnings forecast to 1.9 trillion yen, but flagged a potential slowdown in AI data centre investment as a risk. The bank has tightened lending standards for data centre financing, restricting credit to hyperscalers with high credit standing.

TOKYO — Sumitomo Mitsui Financial Group (SMFG) on Friday raised its profit forecast for the financial year but flagged the prospect of a slowdown in investment into AI data centres. The banking group boosted its annual earnings forecast to 1.9 trillion yen from 1.7 trillion yen and expanded its share buyback programme as corporate lending demand from local firms remained strong and higher domestic interest rates increased lending margins.

Net profit over the July to September quarter was 501.8 billion yen (US$3.14 billion), down 10 per cent from a year earlier, when it registered a gain of 94 billion yen on the sale of its stake in India's Kotak Mahindra Bank. A slowdown in data centre investment could hit the Japanese and global economy and impact SMFG's results over the next six months, Chief Executive Officer Toru Nakashima said at a press briefing.

"This year we have adopted stricter standards on extending credit for data centre financing, for instance restricting ourselves to just hyperscalers with high credit standing," Nakashima said. Fears of overheating in global data centre investment and rising political opposition to their construction have led to a sharp decline in technology stocks in recent weeks as investors reassess their exposure to the vast sums flowing into AI infrastructure.

The resignation of the chief executive of Nvidia, Jensen Huang, over extramarital affairs has sparked concern over the chipmaker's continued ability to spearhead data centre projects as it both supplies chips and finances the infrastructure built around them. "The impact of Huang stepping down is difficult to see at present and whether it leads to a slowdown in data centre investment will depend on the new management," Nakashima said. "Personally, I don't think their stance will change that significantly," he added.

The banking group also increased its share buyback programme by 220 billion yen, bringing the total shares to be bought up to 400 billion yen for the financial year that ends in March 2027.