What to do when you're a bank that has to pay to lend at home? Go elsewhere, or move into more profitable, riskier, businesses.
That's the conundrum facing Japanese lenders, which are now expanding overseas at a faster rate than they're growing domestically. And it's happening just as financial institutions from other parts of the world are retrenching.
On Monday, Bloomberg News reported that Takashi Oyamada, president and chief executive officer of Bank of Tokyo-Mitsubishi UFJ, plans to acquire banks in the U.S. as the bank strives to become one of the world's leading commercial financial firms. Last week, Mizuho Financial Group promoted Andrew Dewing to lead corporate and investment banking in North America as it seeks to expand staff there by at least 10 percent this year.
That's great news for people losing their jobs as Western institutions trim investment-banking operations, or decamp from places like Singapore and Hong Kong. Capital markets staff leaving Jefferies Group in Asia have resurfaced at Japanese banks, and Mizuho took on hundreds of Royal Bank of Scotland Group employees in the U.S.
Japanese lenders' expansion plans aren't new. Mitsubishi UFJ Financial Group's assets in Asia excluding Japan made up 9.3 percent of the total as of March 31 2015, the most in at least 10 years, according to its annual report filed in July. And while the market share of Japanese institutions in corporate banking remains below those of the big three -- HSBC, Citigroup and Standard Chartered -- it's growing, thanks to aggressive and cheap lending.
According to a survey by research firm Greenwich of 500 companies in Asia outside Japan, China, Hong Kong and Australia, 20 to 24 percent had corporate banking relationships with Japanese lenders versus 1 to 6 percent with Chinese banks. About a third of respondents to the survey said Japanese banks had the cheapest pricing.
Perhaps moving in aggressively when everyone else is heading for the exit is a smart thing.
There are, however, good reasons why those other banks are retreating, or charging more to lend. Mitsubishi UFJ, for instance, took control of Thailand's Bank of Ayudhya in 2013 just as troubled loans started to pick up. Nonperforming loans at Thai banks reached 2.92 percent of total advances in the quarter ended Sept. 30, the highest since December 2011, Bank of Thailand data show.
Japanese banks' shift into more wholesale activities is also happening when even traditional houses such as Credit Suisse revisit the model of tying profitability to investment banking, dragging as it does on equity under current regulations. Lenders in Asia's second-largest economy have bad memories of that too. In the 1980s, Fuji Bank, now part of Mizuho, bought Heller Financial in the U. S. and Dai-Ichi Kangyo bought a majority stake in New York-based CIT Group. Both had to exit after bad loans at home surged.
This time, the trouble may not be domestic, especially with interest rates so low. Soured advances are well below where they were 30 years ago and lenders are far from any danger of collapse. Yet, as Mitsubishi UFJ's experience in Thailand demonstrates, the danger may not be the origin, but the destination of the money.
It's hard to put Japanese banks on the spot when their alternative is weak growth and negative interest rates. But they will have to be careful to avoid the pitfalls other lenders are just getting themselves out of. As for their shareholders, now's the time to be paying attention to more than just what happens at home.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
To contact the editor responsible for this story:
Katrina Nicholas at firstname.lastname@example.org