• Published on 31 May 2017
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Japan lender SMFG eyeing mergers and acquisitions in asset management and banking for growth

Japanese lender Sumitomo Mitsui Financial Group (SMFG) is looking to acquire asset management firms at home and abroad as well as commercial banks in emerging Asia to boost growth amid falling loan income and stricter bank regulation, its CEO said.

Hobbled by tepid demand for cash from businesses amid weak economic growth for years, and more recently by negative interest rates, Japan's major banks have been trying to boost their fee incomes by buying asset managers and funds-related service providers. They have also acquired stakes in lenders in places like Southeast Asia.

"As we look for ways to increase assets under management at Sumitomo Mitsui Asset Management (SMAM), we need to consider inorganic means," Takeshi Kunibe, CEO of Japan's third-largest lender by assets, said in an interview.

While SMFG is only now looking at acquisitions in asset management, Japan's biggest lender Mitsubishi UFJ Financial Group (8306.T) acquired a stake in Aberdeen Asset Management PLC as far back as in 2008 and now owns about 17 percent in the British fund manager.

And No. 2 Mizuho Financial Group agreed in 2015 to buy a 16 percent stake in Matthews International Capital Management LLC, a U.S.-based, Asia-focused investment house.

SMAM, the funds unit of SMFG, manages about 11.9 trillion yen ($107.2 billion) in assets. Kunibe did not give a target figure for AUM or types of asset management companies for potential acquisitions.

The CEO said his bank has made its three-year business plan on the assumption that the central bank's negative interest rate policy remains in place. "Very tough business conditions continue," he said.

He said the banking industry also faces headwinds on the regulatory front, where global capital rules, called Basel III, require lenders to set aside more capital for risky assets such as loans.

As a result, Kunibe said the bank's total assets are unlikely to expand at the pace seen in the past 10 years, when they doubled to 200 trillion yen.

Still, he said the bank is looking for growth opportunities in emerging Asia markets, with acquisitions of local commercial banks among its options.

In Indonesia, SMFG spent a total of $1.5 billion in 2013 and 2014 to buy 40 percent of PT Bank Tabungan Pensiunan Nasional Tbk (BTPN). "If we can get Indonesian authorities' approval, we would like to raise our stake in BTPN," Kunibe said. He did not say whether the bank was actively pursuing a deal.

SMFG is also looking to start retail and wholesale banking in a third Asian country, after similar operations in Indonesia and Vietnam, the CEO said, without disclosing details. It owns a 15 percent stake in Vietnam's Eximbank EIB.HM.

Re-disseminated by The Asian Banker from Reuters