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Banking & Finance

Japan's megabanks are on the march in Southeast Asia

TOKYO   Japan's megabanks are splashing out across Southeast Asia.

     Bank of Tokyo-Mitsubishi UFJ recently decided to invest in a Philippine bank to secure a foothold in the country. It took a similar approach in Thailand, where it acquired a major commercial bank.

     Sumitomo Mitsui Banking Corp. aims to increase its stake in a bank in Indonesia, a primary market for its business expansion strategy.

     Although there are concerns about possible slowdowns in Asian economies, top Japanese banks are still on the hunt for acquisition targets.

     "The more markets crumble, the more acquisition opportunities crop up," an executive of another Japanese bank said following BTMU's announcement on Jan. 14 that it was buying a 20% stake in Security Bank of the Philippines. BTMU sealed the nearly 100 billion yen ($855 million) deal despite the unfavorable business environment; the rival executive clearly understands why the megabank pounced while Asian stock prices are weak and currencies are sliding.

     With the investment in the Philippine bank, BTMU will seek to promote services for individuals and small businesses in the country, where the middle-income segment is growing.

SHORTCUTS   While Japanese banks do business with big companies in Asian countries through their overseas branches, they find shortcuts in tie-ups with local institutions to expand retail banking services. These partners already have branch networks and customer bases.

     BTMU has been providing retail services in Thailand via Bank of Ayudhya, which it acquired in 2013.

     SMBC is also seeking to expand its retail banking operations in Asia. In Indonesia, it acquired a 40% stake in Bank Tabungan Pensiunan Nasional, or BTPN, and launched services for individuals, such as remittances via cellphones. While the 40% interest is the maximum under Indonesia's bank ownership rules, SMBC President Takeshi Kunibe said, "The restriction may be eased in the future, creating an opportunity to acquire a majority stake."

     Last year, SMBC made Acleda Bank, the biggest bank in Cambodia, into an equity-method affiliate through an additional investment.

     Japan's three megabanks -- Mizuho Bank is the third -- have also invested in banks in Vietnam, which is drawing strong international attention as a result of its growth potential. 

    Japanese banks remain keen on Southeast Asian expansion because they hope to capitalize on the recent establishment of the ASEAN Economic Community, which is turning the region into a massive single market. They also hope to cash in on the implementation of the Trans-Pacific Partnership trade deal.

     But there are persistent concerns that Asian economies will flag as a result of China's prolonged economic slowdown. Geopolitical risks are also growing -- the recent terrorism in Indonesia being one illustration of this.

     Acquisitions, of course, are risky in and of themselves. Sumitomo Mitsui Financial Group, the parent of SMBC, logged an asset impairment loss of 55 billion yen after a sharp fall in BTPN's stock price.

     So as they embark on further investments, Japanese banks are being tested on their ability to spot opportunities amid tough market conditions.

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