Mizuho Steers Regional Bank Stimulus Cash Overseas: Japan Credit

Mizuho Financial Group Inc. expects to boost overseas syndicated loans by 50 percent this fiscal year as it steers regional lenders, flush with cash intended to stimulate Japan’s economy, into Latin America and emerging Asia.

Japan’s third-biggest lender by market value may arrange 450 billion yen ($4.45 billion) of such loans in the 12 months to March 2014, according to Yasuyuki Yamaji, Mizuho’s general manager of cross-border syndication. Facilities for investment-grade companies in Latin America pay more than 100 basis points over the London interbank offered rate, while the premium for Indian and Indonesian corporates exceeds 200 basis points, said Yamaji. That’s more than double the 40 basis-point average for a comparable rate in Japan, data compiled by Bloomberg show.

“Spreads in Japan have flattened out, making it difficult for lenders to increase profitability,” Yamaji said in an interview in Tokyo on July 3. “More and more of them turn to us for the cross-border know-how.”

The overseas foray by regional banks, whose excess cash climbed to a record 93.53 trillion yen last month, conflicts with Prime Minister Shinzo Abe’s goal of using monetary easing to stimulate local investment and increases competition for global banks including HSBC Holdings Plc. The Bank of Japan yesterday said deposits at domestic local lenders continued to climb in June, extending increases into the 11th year and outpacing the growth of lending.

Abenomics Impact

“There is little empirical evidence suggesting that Abenomics has had an effect” on lending, said Masahiko Sato, an analyst at Nomura Securities Co. in Tokyo. “Regional lenders depend on megabanks as they turn to overseas markets to bolster interest income.”

Representatives of more than 20 regional banks are expected to take part in training courses for overseas syndicated loans offered by Mizuho this fiscal year, according to Yamaji. That compares with fewer than 10 banks in 2011, he said.

Deposits at regional banks jumped 3.7 percent last month to 299.22 trillion yen, outpacing a 2.8 percent increase in lending to 205.69 trillion yen, according to the BOJ data. The average interest rate on new long-term loans was 1.002 percent in May, near an all-time low of 0.969 percent set in March.

Rate Swings

The central bank’s April 4 decision to end deflation and spur lending through unprecedented monetary easing pushed Japan’s benchmark 10-year yield to an all-time low of 0.315 percent the following day. The rate rebounded to as high as 1 percent in May and was 0.5 basis point lower at 0.875 percent as of 9:53 a.m. in Tokyo today.

“Regional banks need something more profitable than government bonds to survive the competition and many are considering lending overseas,” Yamaji said.

Mizuho, along with Mitsubishi UFJ Financial Group Inc. and Standard Chartered Plc, earlier this month led a $1.5 billion loan for Brazil’s Banco Itau BBA SA. Among 35 participants were regional lenders Gunma Bank Ltd., Hachijuni Bank Ltd. and Hyakugo Bank Ltd., according to Yamaji. The three- and four-year facilities would be priced at as much as 155 basis points more than Libor, a person familiar with the matter said in May.

“Our priority is to boost lending relative to deposits,” said Akira Murata, a spokesman for Hyakugo Bank. “We want to gain enough experience to feel confident in calling overseas loans one of our revenue streams.”

Kajima’s Bonds

Elsewhere in Japan’s credit markets, Kajima Corp. plans a 10 billion yen sale of five-year notes, according to a statement from SMBC Nikko Securities Inc. yesterday. The construction company last offered bonds on Sept. 19, raising 20 billion yen of 0.89 percent debt, according to data compiled by Bloomberg.

Japan’s corporate bonds have handed investors a 0.1 percent loss since the end of June, compared with a 0.3 percent decline for the nation’s sovereign notes, according to Bank of America Merrill Lynch index data. Company debt worldwide has lost 0.18 percent.

The yen was at 101.05 per dollar as of 9:57 a.m. in Tokyo today, weakening from a two-month high of 93.79 on June 13.

Five-year credit-default swaps to insure Japan’s sovereign notes against non-payment were at 74 basis points yesterday, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. The gauge is down from 90.5 basis points on June 20, the highest level since July 2012, the data show.

Vietnam Loan

Last month, regional lenders including Shizuoka Bank Ltd., Chiba Bank Ltd., Yamaguchi Bank Ltd. and Tokyo Star Bank Ltd. joined the $5 billion loan for Idemitsu Kosan Co.’s oil refinery in Vietnam. The entry reduced HSBC and Credit Agricole SA’s portions of the deal by as much as 60 percent, according to six people familiar with the matter.

Shizuoka Bank in April raised $500 million in the first public sale of U.S. dollar-denominated convertible bonds by a Japanese company since 2002, preparing funds for lending abroad. The nation’s biggest regional lender by market value plans to increase foreign currency financing by 29 percent to 450 billion yen in the fiscal year started April 1, according to Hiromitsu Umehara, the general manager in charge of structured finance at the company’s Tokyo branch.

Going Abroad

Increased competition from new market entrants is encouraging Tokyo Star, which began overseas lending in 2010, to seek ways to differentiate itself, Christopher Taniguchi, a managing director of the bank said in an interview.

Stockpiles of sovereign debt at local lenders totaled 43.4 trillion yen in May, equivalent almost to the annual economic output of Argentina.

“We started lending abroad this year through syndicated loans to diversify away from JGB investments,” said Masashi Amada, an assistant general manager at Gunma Bank’s corporate planning department. “The target for the time being is about 10 billion yen.”

The lender joined Tokyo Star and Chugoku Bank Ltd. in the $500 million bullet loan for Indonesia Eximbank in May, said Yamaji of Mizuho, which also took part in the deal. Japanese institutions contributed $132 million, the Indonesian company said at the time.

Hyakugo Bank, based in Mie, in central Japan, plans to increase annual lending for large companies headquartered in Tokyo and Osaka by 55 billion yen by March 2016 via cross-border syndicated loans, according to its mid-year business plan. Outstanding loans in the business totaled 405.7 billion yen last fiscal year.

“Their deposits are growing faster than loans while lending profit is decreasing,” Nomura’s Sato said. “Access to more borrowers is good news for the banks.”

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