Sumitomo Mitsui Financial Group Inc. (8316), Japan’s second-largest bank by market value, may sell a record amount of dollar-denominated bonds next year to fund loan expansion abroad.
The company’s lending unit targets two issuances that could total as much as $4.5 billion, matching this year’s amount as the most in Sumitomo Mitsui’s 11-year history, President Koichi Miyata said in a Dec. 19 interview. The two sales would range from $1 billion to $3 billion each, he said.
Japan’s three megabanks are increasing lending overseas as deflation and economic contraction damp credit demand and loan profitability at home. Selling bonds and collecting deposits in dollars is vital for Sumitomo Mitsui to fulfill a goal of expanding lending abroad by 2 trillion yen ($23 billion) a year, Miyata said, adding that he wants to invest in Asian banks.
“We’re going to trim dependence on yen-based funding,” Miyata, 59, said at the bank’s Tokyo headquarters. “We want to go to the market at least twice next year for dollar bond sales.” The issuances depend on market conditions, he added.
Moody’s Investors Service upgraded its outlook for Japanese banks to stable from negative in November, citing their improved capital, asset quality, funding and liquidity. A retrenchment by global banks, particularly from Europe, has given Japanese lenders greater opportunities to expand loans abroad, Moody’s said in its first outlook change since 2008.
“With their stronger creditworthiness, Sumitomo Mitsui and other Japanese megabanks won’t have a problem raising money from dollar bond sales next year,” said Yoshinobu Yamada, a Tokyo- based analyst at Deutsche Bank AG. “We should also keep an eye on Sumitomo Mitsui’s investment in Asian lenders as I expect they can afford to spend several billions of dollars.”
The cost of insuring bonds of lending unit Sumitomo Mitsui Banking Corp. fell to 94 basis points this year from 182 at the end of 2011, according to data provider CMA. The unit is rated Aa3 by Moody’s, the fourth-highest grade.
Shares of Sumitomo Mitsui rose 0.3 percent to 3,070 yen at the midday break in Tokyo, extending this year’s advance to 43 percent. Mitsubishi UFJ Financial Group Inc. (8306), Japan’s biggest bank, has gained 37 percent and Mizuho Financial Group Inc. (8411), the third largest, has climbed 44 percent.
Sumitomo Mitsui has been building dollar deposits as well as selling bonds in the currency. Deposits offshore rose 32 percent from a year earlier to $160 billion as of Sept. 30, company data show.
The bank sold $1.5 billion of dollar bonds in January, followed by $3 billion in July in a three-part offering that included five-year debt with a 1.8 percent coupon. That’s higher than the 0.28 percent on 60 billion yen of five-year notes sold in October, according to data compiled by Bloomberg.
Sumitomo Mitsui had $142 billion of loans outstanding overseas as of Sept. 30, a 16 percent increase from a year earlier, company figures show. Loans to Asia accounted for 39 percent, the Americas 32 percent and Europe the rest.
“Asia and North America will be our main markets for lending,” said Miyata. “In the U.S., we’ll increase transactions with blue-chip companies because I expect the economy there to grow 2 percent next year.”
Dollar funding would also help Sumitomo Mitsui finance investments in banks outside of Japan, especially Southeast Asia, Miyata said. He expects European banks will continue to reduce their stakes in lenders in the region.
“Southeast Asia is the area that interests me,” said Miyata, who became president in April 2011. “Dollar funding would be crucial at the time of acquisition.”
Mitsubishi UFJ is poised to sign an accord to buy a 20 percent stake in Vietnam Joint Stock Commercial Bank for Industry and Trade, or VietinBank (CTG), from the Vietnamese government as soon as today, two officials from the Tokyo-based company said on Dec. 18. That would make it the third Japanese megabank in five years to invest in a Vietnamese lender.
Sumitomo Mitsui bought 15 percent of Vietnam Export-Import Commercial Joint Stock Bank, known as Eximbank, for $225 million in 2007. The Japanese lender is also expanding in North Asia, sealing a HK$3.3 billion ($425 million) accord this month to double its stake in Bank of East Asia Ltd. (23), Hong Kong’s largest family-run bank, to 9.5 percent.
Miyata said a year ago that his bank would spend “several hundred billion yen” on assets being sold by European banks. Sumitomo Mitsui led a group that bought Royal Bank of Scotland Group Plc’s aircraft leasing unit this year for $7.3 billion.
Sumitomo Mitsui is also looking to expand its consumer lending in Asia, Miyata said in the interview. Its SMBC Consumer Finance Co. unit -- created this year after the bank made Promise Co. a wholly owned subsidiary -- is considering opening a third office in mainland China, he said, without elaborating on the location or timing.
SMBC Consumer Finance has units in Shenyang and Shenzhen as well as Hong Kong and Bangkok, according to its website. Lending outstanding in the four locations totaled 27 billion yen as of Sept. 30, about 3.6 percent of SMBC Consumer Finance’s 746 billion yen of loans.
“Building on a company’s strengths is the key to success in business,” Miyata said. “Consumer finance is one of our strengths.”
To contact the reporters on this story: Shigeru Sato in Tokyo at firstname.lastname@example.org; Shingo Kawamoto in Tokyo at email@example.com
To contact the editor responsible for this story: Chitra Somayaji at firstname.lastname@example.orgSumitomo Mitsui Financial Group President Koichi Miyata. Photographer: Akio Kon/Bloomberg Sumitomo Mitsui Financial Group President Koichi Miyata. Photographer: Akio Kon/Bloomberg