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Sumitomo Trust to Expand Investment, Lending in China (Update1)
By Mariko Yasu and Ichiro Suzuki
Nov. 17 (Bloomberg) -- Sumitomo Trust & Banking Co., Japan's fifth-largest bank by assets, plans to increase lending, investment and alliances in China to seek more profit in the world's fastest-growing major economy.
``China, with the scale of its economy, can at least double or triple our revenue in Asia,'' Hideo Amemiya, an executive who oversees the bank's international strategy, said in an interview in Tokyo on Tuesday. ``I'd like to draw up a plan and carry it through within two to three years.''
China's $2.22 trillion economy is drawing Japanese banks including Sumitomo Trust, which are looking for earnings drivers after reducing bad debts at home. The longest postwar economic expansion in Japan is also encouraging manufacturers to bolster their overseas operations, providing banks with increased lending opportunities.
Sumitomo Trust, which specializes in managing pension funds and property assets for clients, is seeking to increase its investment in China buyout funds. It has invested in CITIC Capital China Partners LP, which raised $220 million last month, its first such investment in the country, said Amemiya, 52, without giving further details.
China Buyouts
The Osaka-based bank is also looking at other funds run by managers based in China and Hong Kong, including CDH Investments, ACTIS and Capital Today, he said.
``We came to believe China buyouts are better managed by local firms,'' Amemiya said. Global private equity firms active in China such as Carlyle and Newbridge ``have met obstacles as corporate governance there is a difficult issue for them.''
Sumitomo Trust is considering alliances with Chinese financial institutions, Amemiya said. ``Chinese investors are becoming more interested in asset management after QDII was introduced. Part of their assets will likely be invested in the Japanese market.''
Banks and fund managers in China, Japan's largest trading partner, have won approval to invest $12.6 billion in overseas products under the qualified domestic institutional investor program, or QDII, which started in April. China's asset managers may invest $75 billion abroad in the next two years, a Shanghai- based economist at Standard Chartered Bank said last week.
``Japanese banks will have to gain non-Japanese clients to expand further in Asia,'' said Keisuke Moriyama, a Tokyo-based banking analyst at Nomura Holdings Inc. ``They need to catch up with their global competitors, which have bigger investment and business platforms, before the gap between them widens.''
Lending Decline
Lending at large banks in Japan including Sumitomo Trust declined 0.4 percent last month, the Bank of Japan said last week. Growth in bank lending slowed for a third month after a spate of borrowing before the central bank raised interest rates for the first time in almost six years in July.
Mitsubishi UFJ Financial Group Inc., Japan's largest bank by assets, bought a $180 million stake in Bank of China in a June initial public offering. Tokyo-based Mitsubishi UFJ and the Beijing-based bank said in August they will expand cooperation in international settlements, online banking and risk management.
China will fully open its banking market to overseas competition next month. Foreign banks are eager to offer loans, mortgages and credit-card services in the local currency to spur expansion in the $5.1 trillion industry. Their growth in China so far has been hampered by operating restrictions.
China is the most popular destination for Japanese corporations expanding business overseas, according to a poll by a research arm of Mizuho Financial Group Inc. last month. Direct investment to China by Japanese companies rose 14.1 percent to 384.3 billion yen in the first half this year, according to the Ministry of Finance.
`Trade Flows'
``Growing trade flows will give Japan's banks a prominent role to play in China, since a lot of this business will require Japanese banking services,'' May Meizhi Yan, a Hong Kong-based analyst with Moody's Investors Service. ``There's a chance we'll see an improved investment climate under Prime Minister Shinzo Abe, as the new Japanese leadership tries to warm up its relationship with China.''
Relations between Japan and China were strained by former Prime Minister Junichiro Koizumi's visits to the Yasukuni Shrine, which includes convicted war criminals among the dead it honors.
Japan's ``mega banks'' are also expanding in other overseas markets. Mitsubishi UFJ last month formed an alliance with Malaysia's CIMB Group Sdn. to develop Islamic and investment banking. It also said it was buying a controlling stake in an Indonesian bank, PT Bank Nusantara Parahyangan, with Tokyo-based consumer lender Acom Co. to tap demand for personal loans.
Mizuho Financial Group Inc., Japan's No. 2 bank, said last month it will buy Michinoku Bank Ltd.'s Russian unit to find new revenue sources in a country where Toyota Motor Corp. and other Japanese companies are increasingly opening new operations.
Sumitomo Trust's revenue in Asia-Oceania more than doubled to 15.4 billion yen in the year ended March 31. Sumitomo Trust has four overseas branches, and opened its first China branch in Shanghai last year. Before this, it had barely any footprint in China. It is set to report half-year earnings on Monday.