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Yamaguchi Financial Group Inc., the only regional bank Ok’d to lend yuan in mainland China, aims to double loans in the currency as falls in interest rates and borrowing erode profitability at home.

Koichi Fukuda, the bank’s president and chief executive officer, is targeting yuan-denominated loans of ¥16 billion by the year ending March 2013, tapping demand from Japanese chemical makers, food producers and manufacturers in China, he said Tuesday.

Yamaguchi Financial, which won its yuan settlement service license in June, has been lending the Chinese currency on behalf of 14 Japanese regional banks, including Shizuoka Bank Ltd. Japanese lenders are betting on overseas borrowing to increase as companies expand to faster-growing economies such as China, helping to make up for 20 months of declines in domestic loans.

“We see strong demand for the yuan from Japanese companies” and loan margins of “several percent” in China, compared with rates close to zero in Japan, Fukuda said, adding he plans to attract business from regional banks that are concerned larger Tokyo-based rivals such as Mitsubishi UFJ Financial Group Inc. may poach customers after arranging yuan-denominated loans for them.

Yamaguchi Financial’s services are attractive to regional lenders because it doesn’t compete directly with its peers for customers, he said.

Yamaguchi has also conducted lending for 77 Bank Ltd., Hachijuni Bank Ltd. and Iyo Bank Ltd., Fukuda said.

“As a coordinator of regional banks, this is a good way to attract blue-chip assets,” said Maoki Matsuno, an analyst at Daiwa Securities Capital Markets Co. in Tokyo.

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