Japan banking giants wooing overseas borrowers

TOKYO: Japan's banking titans are hiring Spanish-speaking bankers to win new business in Latin America and handing out loans to junk-grade borrowers in the United States as they probe deeper overseas to fight meagre returns at home.

Lenders such as Sumitomo Mitsui Financial Group Inc (SMFG) have ramped up overseas lending since the eurozone debt crisis sent European rivals packing.

The move abroad was given a new impetus this month after the central bank unveiled a stimulus plan that will plunge Japan into an ultralow monetary environment, further eroding razor-thin loan margins and cutting returns on Japanese government bonds.

Banks including Mizuho Financial Group Inc are pushing ahead to identify new overseas borrowers, including corporates with little Japanese connections and natural resources developers seeking copious funding.

Their ventures abroad, while still modest versus their domestic operations, point to their growing risk tolerance in emerging markets, and it remains to be seen whether their efforts will pay off.

“We now arrange deals that are very different from what we used to do in the past, that is, those with very strong local flavour with no involvement of Japanese companies,” said Takayuki Sakai, chief manager of project finance at Bank of Tokyo-Mitsubishi UFJ, a unit of Mitsubishi UFJ Financial Group Inc (MUFG).

The bank was looking to increase local currency-denominated lending, such as those in the real, as opposed to the usual dollar-dominated loans, he said.

Bank of Tokyo-Mitsubishi has been beefing up its project finance business in Latin America, hiring specialist bankers who speak Spanish and Portuguese to gain better access to projects involving exclusively local parties.

Last summer, it hired Ralph Scholtz, BNP Paribas' Latin America project finance managing director, as its region's project finance team head, as well as a Portuguese-speaking banker from HSBC Holdings Plc.

The bank said Latin America was a promising market for project finance, highlighting plans in Mexico to build gas pipelines, and development of copper mines and auxiliary facilities such as power plants in Chile.

MUFG does not disclose dollar-based overseas loan data.

Domestic rivals SMFG and Mizuho's outstanding overseas loans totalled US$277bil as of December, a hefty 66% increase from March 2010.

Sumitomo Mitsui Banking Corp (SMBC), a core unit of SMFG, said a team of its US bankers was targeting small and medium-sized local businesses, including those with credit ratings of BB or lower.

The bank declined to disclose interest margins for those non-investment grade borrowers. Industry sources said loans to BB-rated borrowers had spreads of 170180 basis points over A-rated ones.

There was a limit to what banks could earn from loans to clients with a top-notch credit status, said Hideo Kawafune, senior vice-president at SMBC's international banking unit.

“Our current loan portfolio is a bit weighted on high credit rating borrowers, and we would like to expand lending to customers in the BB+ to BB class,” Kawafune told Reuters.

The bank is increasing loans to US municipalities after poaching a public finance team from a US bank in 2008. Recent transactions include a US$209mil loan to New York City Water Financing Authority. - Reuters

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