Tokyo: Sumitomo Mitsui Financial Group will consider investing in financial firms across Asia, as it looks to double the proportion of gross profit generated overseas in the next few years, the head of Japan’s No. 3 bank said.
Sumitomo Mitsui’s president Teisuke Kitayama also told Reuters in an interview the bank would consider returning to India, which it all but pulled out of in 2005. The interview, conducted at the bank’s Tokyo headquarters on Friday, was embargoed for release until Tuesday.
Asia focus: Sumitomo Mitsui’s Teisuke Kitayama says the bank wants to double the overseas proportion of its gross banking profit. Akio Kon/Bloomberg
“Considering that Asia’s domestic demand is comparatively strong and that we are seeking that growth, we are organically investing our own assets and people there. However, it is necessary for us to consider inorganic investment as well,” Kitayama said. “Centring on Asia, we would like to boost the overseas proportion of our gross banking profit from about 15% now to 25-30% in the next three to five years.”
Gross banking profit is the widest measure of earnings used by Japanese banks, before stripping out personnel costs, trading losses and bad loan costs.
In the April-September first half, Sumitomo Mitsui’s gross banking profit totalled 719.3 billion yen (Rs36, 634 crore today), with the overseas business contributing just 84.2 billion yen, or 11.7%.
Sumitomo Mitsui, which last year paid about $1 billion (Rs4,670 crore) for a 2% stake in Britain’s Barclays Plc, also holds a 15% stake in Vietnam’s Eximbank, which debuted on the Ho Chi Minh Stock Exchange in October.
Elsewhere in Asia, it holds a small stake in South Korea’s KB Financial Group and has signed a strategic alliance agreement with Hong Kong’s Bank of East Asia Ltd.
Sumitomo Mitsui could consider returning to India if more Japanese firms do business in that country. The bank all but closed its operation there in 2005, leaving a “Japan desk” in the New Delhi office of Standard Chartered Plc.
“If Japanese companies advance more into India, it may be necessary to consider a return, with one or two branches,” he said. Critically, Kitayama said the bank has yet to make a decision about issuing more capital in the coming year. Analysts say that Sumitomo Mitsui and its larger rival, Mizuho Financial Group, are currently among the worst capitalized banks in Asia.
Goldman Sachs has estimated that the two may need to raise a combined 2.7 trillion yen to meet new global regulatory standards scheduled to be announced next year.
Mitsubishi UFJ Financial Group, Japan’s top bank, beat its rivals to the market by announcing a 1 trillion yen share sale earlier this year, in order to meet the stricter requirements.
Japanese banks have taken a drubbing from investors this year, hit by concerns about fundraising.
Shares of Sumitomo Mitsui are down 27.4% this year, compared with a 21% decline in Tokyo’s banking index.