Asia Pacific

Japanese Banks outmuscle Chinese on overseas expansion, IMF says


Japanese banks have been more aggressive than their Chinese peers in expanding abroad since the global financial crisis, the International Monetary Fund said in a report that also highlighted differences in their approaches.

Banks in both countries have used their strong balance sheets to seize growth opportunities overseas as European and U.S. lenders retrench from Asia, the IMF said in its Global Financial Stability Report. Yet Japanese banks expanded on a larger scale and diversified their businesses, making them less vulnerable to funding issues, the report showed.

Driven by limited growth prospects at home, Japan’s three biggest banks increased overseas loans to more than 31 percent of their total advances in 2013 from 18 percent in 2009, the IMF said. Chinese lenders expanded loans abroad to 9.2 percent from 6.1 percent in the period, it said.

Chinese banks have been opening foreign offices and branches mainly to follow the overseas expansion being led by their Chinese customers, the IMF said. In contrast, Japanese lenders have been making acquisitions, spending more than ¥1 trillion ($8.3 billion) from 2012 to 2014 on targets ranging from banks to asset managers, it said.

Mizuho Financial Group Inc. is among the Japanese banks diversifying their revenue sources by increasing fee income, while Chinese lenders are focusing on interest income from loans made to compatriots’ foreign units, potentially limiting their ability to expand, according to the report.

With loans growing faster than deposits, Chinese banks have become more reliant on wholesale funding to fill the gap, making them vulnerable to currency and liability “mismatches,” the IMF said.

The average ratio of overseas loans to deposits at China’s four biggest banks rose to more than 2 from about 1.5 in the past five years, it said. The ratio of total liabilities to deposits abroad, a measure of banks’ dependence on funding sources other than customers’ savings, has been climbing steadily since 2009 for Chinese banks, while the portion for Japanese lenders declined, according to the report.

Agricultural Bank of China Ltd., the least globalized among the country’s largest banks, drove the increase in the loan-to-deposit ratio after embarking on aggressive strategies to expand overseas, the IMF said. The ratio for Bank of China Ltd., the most international of the four, was less than 1.

China’s banking regulator requires domestic lenders to cap their loans at 75 percent of deposits to limit leverage. The restriction doesn’t apply to their overseas operations.

The mismatch between loans and deposits overseas shouldn’t be a major source of concern to Chinese banks because of their strong domestic capital bases, said Yuan Lin, a Beijing-based analyst at BOC International Holdings Ltd., the investment banking unit of Bank of China.

“I won’t rule out isolated cases of risks being exposed, but that won’t undermine the fundamental strength of Chinese banks at all,” Yuan said. “Japanese banks and U.S. banks had much bigger foreign exposure when they were at our stage of development.”

Lenders from both countries continue to look abroad to reduce reliance on their home markets.

Bank of China plans to establish eight overseas branches this year in countries including Hungary, Poland and Indonesia, people familiar with the matter said this month.

Mizuho agreed this year to buy North American loans from Royal Bank of Scotland Group PLC for about $3 billion. The Tokyo-based bank is hiring about 130 RBS employees in the U.S., a source with knowledge of the moves said this week.

“Growth opportunities still abound for both Chinese and Japanese banks, as their domestic clients increase their outward expansion,” the IMF said.