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Banking & Finance

Japan’s MUFG is a case study in how one Tokyo lender has once again become a major player in emerging Asia

Japanese banks have become more outwardly focused in recent years, recapturing some of the market share they held in emerging Asia in the 1990s

PUBLISHED : Sunday, 15 July, 2018, 1:03pm
UPDATED : Monday, 16 July, 2018, 2:28pm

MUFG, the largest bank in Japan, has been rapidly growing through acquisition in emerging Asia, overtaking several foreign lenders in terms of market share, and recapturing much of the gravitas enjoyed by Tokyo bankers in the region in the late 1990s.

“Total assets combined with our four partner banks in Asean are around 17 trillion Japanese yen or US$160 billion. We have exceeded global peers such as Citibank, HSBC and Standard Chartered,” said Muneaki Tokunari, the chief financial officer and director of MUFG.

In anticipation of strong growth in emerging economies in Asia, MUFG has been actively enhancing its services by acquiring stakes in Vietnam’s VietinBank, Thailand’s Bank of Ayudhya and Security Bank Corp of the Philippines.

In December, the bank announced the purchase of a majority stake in PT Bank Danamon Indonesia from Singapore state investor Temasek Holdings. MUFG completed the acquisition of a 19.9 per cent for 15.875 trillion rupiah (US$1.17 billion) and plans to raise its stake to 40 per cent during the third quarter.

“We define internal Asia as our second home market. We expect a lot of growth potential from these countries,” Tokunari said in an interview with the South China Morning Post.

MUFG was inaugurated in 2005, following the merger of the Mitsubishi Tokyo Financial Group and UFJ Holdings. MUFG, with over 150,000 employees, has a global network with over 1,800 locations in 50 countries spanning the Americas, Europe, Middle East, Africa, Asia, Oceania and East Asia.

“If we aggregate the number of domestic branches of our four partnership banks, there will be more than 2,000 branches in Asia. It is far bigger than these foreign banks,” he said.

Asia contributes more than 40 per cent of MUFG’s total overseas net operating profit. About two-thirds of the bank’s overseas staff are working in Asia.

Tokunari said he expects business in the region will continue to grow once the deal for a stake in Bank Danamon Indonesia has completed.

The lender sees growth opportunities continuously arising in the burgeoning economies of Asia, even as it anticipates growth of the global economy will slow by 2020.

“The fundamentals of the growth rate in Asia are so good, even after the credit cycle comes down, we decide to utilise our existing capital to invest into these four Asian banks in order to capture the growth of the Asian countries as a whole,” he said.

Japanese banks were leading lenders in Asia in the late 1990s, making up about 42 per cent of all international consolidated claims in Indonesia, South Korea, Malaysia, Philippines and Thailand, according to research released in March by the Bank of International Settlements.

International claims are defined by BIS as the sum of a banks’ cross-border claims and their local claims denominated in foreign currencies.

Like a game of musical chairs, banks that have dominated the business of lending to emerging Asia have been changing places during the last two decades.

In the aftermath of the Asia Financial Crisis, the dominance of Japanese banks was increasingly challenged by European banks. By mid-2008, Japanese banks held just 15 per cent of international claims, while European banks accounted for 35 per cent, according to the report.

However, in recent years, Japanese banks have become significant players once again.

“We have seen an increasing trend in the last couple of years in terms of Japanese banks becoming more outwardly focused. It is likely to be a reflection of overseas opportunities,” said Paul McSheaffrey, partner and head of Hong Kong banking at KPMG China.

Japan is a more mature economy and as a result sees lower growth.

“Japanese banks therefore need to look elsewhere for additional lending opportunities,” McSheaffrey said.

While Japanese lenders have made inroads into markets in Asia recently, BIS is careful to point out that they are far from matching their dominance in the 1990s.

Among the new breed of contenders, mainland Chinese banks have emerged as heavyweights along with other banks located, but not headquartered, in the offshore centres of Hong Kong and Singapore.

Most likely, these new players will continue to compete with Japanese banks for market share in the future.

“Things are likely to be different going forwards,” McSheaffrey said.

Chinese banks have become increasingly important lenders in Asia, particularly in backing clients in connection with the Belt and Road Initiative.

“We expect Chinese banks will be quite active in these markets to support companies,” McSheaffrey said.

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