July 9, 2012 / 3:19 AM / 5 years ago

Japan's biggest banks target Korean conglomerates for growth

TOKYO (Reuters) - Japanese banks, facing sluggish loan demand at home, are increasingly targeting South Korea where conglomerates such as Samsung Electronics (005930.KS) and Hyundai Motor (005380.KS) are seeking funds to expand globally.

With rival European lenders retreating as the region’s debt crisis heads towards its fourth year, well-capitalized Japanese banks find themselves at a competitive advantage. Mitsubishi UFJ Financial Group (8306.T), Mizuho Financial Group (8411.T) and Sumitomo Mitsui Financial Group (8316.T) (SMFG), the country’s biggest banks, have formed teams to track the funding needs of South Korean firms looking to build chip factories and auto assembly lines abroad.

“We have been studying their business and capital expenditure plans and chasing potential deals,” said Takahiko Yasuhara, the Seoul branch general manager at Mizuho Corporate Bank, a unit of Mizuho Financial Group. “As European lenders face hard times, the status of Japanese banks is on the rise.”

In the year ended March 31, loans by Japan’s top three banks in South Korea grew 28 percent to about 1.07 trillion yen ($13.3 billion). The banks said the figure would have been several times larger if lending to overseas subsidiaries of South Korean companies were included.

By contrast, their outstanding loans in Japan remained flat.

Traditionally, South Korean banks lack the geographical reach and dollar funding to support the country’s exporters, which have turned to foreign lenders for financing and other banking needs in overseas markets.

Mizuho and SMFG, jointly with Korea Development Bank and Bank of America Merrill Lynch, are providing a $184.7 million five-year loan to the Mexican unit of POSCO (005490.KS), Asia’s second-biggest steelmaker, Thomson Reuters LPC reported last month.

“South Korean companies’ appetite for loans is very strong,” said Kazuki Kato, a senior banker at international banking unit at Sumitomo Mitsui Banking Corp (SMBC), a core bank of SMFG.

POSCO, Samsung and Hyundai declined to comment.

SMBC set up a “Global Korea” corporate banking department in April last year with about 20 staff, including South Korean bankers based in New York, London and Singapore. Bank of Tokyo-Mitsubishi UFJ launched a similar team in May with 20 bankers.

The banks are also trying to move beyond lending. Mizuho said foreign exchange deals with South Korean clients jumped more than twofold in the financial year ended March 31.

“We expect loan demand by South Korean companies to grow further, though we already reached considerable amounts,” said SMBC’s Kato. “Our next step is to expand into trade finance and cash management.”

Japanese banks, sitting on piles of deposit money at home, are also buying up assets as European rivals retreat to weather the turmoil at home. Mizuho said last month that it had agreed to acquire a Brazilian unit of Germany’s WestLB.

In June, SMFG also completed the $7.3 billion acquisition of RBS Aviation Capital from Royal Bank of Scotland.

($1 = 80.4950 Japanese yen)

Additional reporting by Wakako Sato in TOKYO and Kim Miyoung and Hyunjoo Jin in SEOUL; Editing by Ryan Woo

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