Emerging Markets

Southeast Asia's pain is a gain for Mizuho Bank

Mizuho CEO: China isn't the 'killer factor' for Japan

Southeast Asia's vulnerability to a slowing China and the prospect of tighter U.S. monetary policy isn't deterring Japan's third-largest lender by revenue from seeking opportunities in the high-growth region.

China's economic slowdown and an interest rate increase in the U.S. is undoubtedly negative for ASEAN, Yasuhiro Sato, chief executive officer and president of Mizuho Financial Group, told CNBC.

"The general economic situation is slowing down but that is a good business opportunity for us to expand in Asia," pointing to his main target areas of commercial ranking businesses, asset management businesses, and debt capital markets.

ASEAN, or the Association of Southeast Asian Nations, is highly exposed to China's economy and as Beijing experiences its slowest pace of annual economic expansion since 1990, Chinese demand for ASEAN goods is waning.

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That's reflected in the region's weak export picture: Indonesian exports have been tanking for ten straight months, Thailand has witnessed a seven-month losing streak and Philippine exports have declined since April.

The yuan's recent devaluation also exacerbates the current gloom, with countries like Vietnam taking a page from China's book and devaluing the dong to stay competitive.

Moreover, Southeast Asian currencies like the rupiah and ringgit have crashed to lows not seen since the Asian Financial Crisis on the back of sliding commodity prices, high dollar-denominated debt levels and political worries. Experts say a tightening of U.S. monetary policy this year could worsen these ailments and trigger severe capital outflows.

All these factors are problematic for Japanese corporates like Mizuho who have invested heavily in ASEAN, a region with robust loan demand and some of Asia's highest growth rates.

Earlier this year, it was reported by the Wall Street Journal that Mizuho offered to buy a 60 percent stake in the Bank of Commerce, the Philippines' 15th largest bank by assets. Mizuho declined to comment on the reported approach.

The Japanese lender also owns a 15 percent stake in the Joint Stock Commercial Bank for Foreign Trade of Vietnam and is the primary sponsor of a fund that part owns Tata Technologies. Mizuho also signed a memorandum of understanding with Thailand's Siam Commercial Bank last year.

Kiyoshi Ota | Bloomberg | Getty Images

More deals soon?

The yen's 13 percent depreciation against the greenback in the past twelve months makes it expensive for Japanese financial institutions interested in overseas opportunities, Sato explained.

"Within a couple of years, I think we'll have a good chance to have cheaper price acquisition opportunities. I'm waiting for some reasonable market conflict in the future...That's the timing to get into the M&A businesses."

Until then, Mizuho's strategy is to be selective in the region.

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"Our overseas businesses are focused on multinational companies, so they are quite strong even if the country isn't," explained Sato. "Their businesses are quite diversified so even if credit risks worsen, it's not a negative impact to us."

He singles out Indonesia and Malaysia as the biggest high-risk countries in ASEAN.

"Many Japanese corporations have been interested in Indonesia in the past, so now they are just cautious to take a look at the client status. I don't know if this trend will last for couple of years or just six months. It depends on the Chinese economy and the timing of the U.S. rate hike."

Like many other investors, Sato is positive on India since their economic fundamentals have greatly improved since the last emerging markets crisis in 2013.

"India relies on its domestic market so it's not as worse off as other ASEAN countries like Indonesia and Malaysia."

CORRECTION: An earlier version of this story incorrectly reported that Mizuho offered to buy a 60 percent stake in the Bank of Commerce. In fact, Mizuho has declined to comment on the accuracy of a report that it had made the offer to the Bank of Commerce.