DOMESTIC LENDING FALLING

SMFG turns to alliances with Asian banks

by Finbarr Flynn and Ichiro Suzuki

Bloomberg

Sumitomo Mitsui Financial Group Inc. will target alliances with Asian banks, including Malaysia’s RHB Capital Bhd., to boost income as domestic lending falls.

“We have a close relationship with RHB and are considering what kind of business we can do together,” President Teisuke Kitayama, 61, said in an interview at the Tokyo-based bank’s headquarters.

Kitayama said SMFG may “make a major or small investment” in commercial banks in Southeast Asia, following its purchase of a stake in a Vietnamese bank last year.

Kitayama expects the biggest opportunities to be in consumer banking in Asian nations as he seeks to raise overseas revenue to 15 percent of total sales from about 10 percent at present. Profit growth is stalling at home as cash-rich companies shun borrowing.

SMFG already introduces Japanese clients requiring local currency financing in Malaysia to RHB and cofinanced a $100 million (¥10.8 billion) loan for it with the Japan Bank for International Cooperation in 2006.

Malaysia’s Employees Provident Fund, which owns 82 percent of RHB, plans to reduce that holding to 35 percent by July, the fund said last month when it announced exclusive talks with Abu Dhabi Commercial Bank PJSC to sell a quarter of the Malaysian bank. RHB had a market value of $3.9 billion (¥421.1 billion) at the close of trading Jan. 14.

Kitayama declined comment on whether SMFG will buy a stake in Kuala Lumpur-based RHB. The Star newspaper reported last month that SMFG is in talks to buy 5 percent of the bank.

In November, SMFG agreed to acquire 15 percent of Vietnam Export Import Commercial Joint Stock Bank for $225 million (¥24.3 billion) to tap demand in a nation that’s targeting economic growth in excess of 9 percent. SMFG will help the Vietnamese bank offer loans to local individuals and firms as well as to Japanese companies operating there.

“Strategically, Japanese banks need to focus on areas of international business where they can exploit their strengths,” said Hiroshi Hosoda, chief analyst at Rating and Investment Information Inc. in Tokyo. “It is understandable that they’re focusing on retail banking in fast-growing Asian countries.”

The fallout from the U.S. mortgage default crisis, which forced Citigroup Inc. and Merrill Lynch & Co. to seek more than $13 billion (¥1.4 trillion) in capital from foreign investors in November and December, is providing SMFG new chances to expand overseas, Kitayama said.

“If a U.S. or European bank is selling divisions or assets, we’d certainly be willing to consider buying,” said Kitayama, declining comment on whether such talks were taking place. A multibillion dollar investment in a U.S. bank, such as those announced by sovereign funds in Singapore and Abu Dhabi last year, would be beyond SMFG because it doesn’t have enough capital, Kitayama said.

SMFG’s net income slumped 59 percent in the quarter that ended Sept. 30, as it reported losses on U.S. mortgage investments and marked down its stake in a credit card acquisition.