Following is the full transcript of CNBC's exclusive interview with Nobuyuki Hirano, President & Group CEO, Mitsubishi UFJ Financial Group at the 2017 Singapore Summit. This interview broadcasted in Asia on Monday, 18 September.
All references must be sourced to a "CNBC Interview".
Interviewed by Amanda Drury, Contributor, CNBC.
Amanda Drury (AD): Let's start talking about North Korea because North Korea just yesterday launched a second missile over Japan. Do you think that the markets are right to shrug this off?
Hirano: Well of course to Japan it's a great threat. I mean the missile flew over Japan and it's reached 3700 kilometers which is enough to shoot the island in Guam. So that's a big threat. Therefore the global community needs to make clear that they are not really possible to allow this unlawful conduct. But in the meantime I think the business people it's trying to digest in a calm manner. So in the earlier trading in Tokyo we had some hike of the yen against U.S. dollar. But after that you know the market reaction was limited. But certainly given this uncertainty we need to work closely with the public sector and private sector to make sure you know any disruption will not come in the market place.
AD: On a personal level being Japanese and being so close to North Korea, does it worry you? Does it worry the people that you talk to?
Hirano: Well actually we need to worry about this. I mean Japanese citizens and public have been accustomed to the long lasting peace and they believe peace is always there. But it's not necessarily the case and the series of nuclear tests and the launching of missiles gave us a very strong alert let me put it in that way. So I think that you know that's a kind of a good lesson for us to think about what national security is and what we should do with our life in particular with the United States and our neighboring countries.
AD: So back to the original issue of the way that the markets now have now been able to shrug off these sabre rattling events of North Korea. A lot of banks have suffered low trading revenues because of low volatility. But we spoke with Deutsche Bank yesterday and the CEO said you know it's not necessary that volatility is low, actually volatility is higher it's just that the price of volatility is lower. Is that how you see it as well?
Hirano: Well it depends on the market place. In Japan if we talk about the yen interest rates as you know at this point of time, negative to zero. So you know as far as Bank of Japan try to keep the yield curve controlled tightly then there should be no volatility. So in that sense the Japanese government bond markets as well as the short term interest of markets is almost debt. So is that a good thing? I don't think so. But this has you know deeply rooted into the persistent Japanese economic slow growth. So we need to address how to revive the Japanese real economy in the medium term. That's the reason why Prime Minister Abe has been trying very hard to shoot three arrows. And we need to really you know continue to press our government to continue to tackle these issues including the economic recovery as well as the Social Security reform, labor market reform, agricultural reform and so on.
AD: But do you think Abenomics is failing?
Hirano: I don't think so. It made significant progress. I mean since his inauguration to his office, Japan's markets reacted positively. And people also started to think about this time is different, as a matter of fact we already experienced the seven consecutive quarters continuous economic growth although the rate is not as impressive as in China. But for us where potential growth rate is just 0.7-0 .8 per cent, 1.5 per cent growth, if it's a solid one, that's a good thing for us. So it's a visible change but we still have a long way to go. And I think the point is you know the government and also ourselves industry leaders need to work very hard to eliminate any uncertainty or the fears towards the future. The reason why Japanese consumers do not spend money a lot, rather they continue to save is their concern about the future. And why the Japanese corporate doesn't make big investments despite the fact they have huge retained earnings and cash the hand is the uncertainty towards the future. So we have to overhaul all of those economic and social systems and also the fiscal consolidation is another issue we need to tackle.
AD: If you were the head of the BOJ instead of Mr. Kuroda what would you do?
Hirano: That's a good question. I think I would work with the government so monetary policy itself has limited impact over the economy. It can give the positive impact for the markets, money market-capital markets, but it does not substantial change the economic system. So in order to make that happen, if I were him then I'd sit down with a prime minister Abe and you know make the discussion how we jointly steer this very difficult environment. And actually Kuroda-san and Prime Minister Abe have done quite a good job. So I encourage them to continue their constructive plan.
AD: What do you think the argument is for investing in Japanese assets at this juncture? Especially when you talked about some of the Abenomics programs one of them of course the BOJ buying so many stocks particularly through ETFs, so it's very difficult for an investor to tell what's the proper price to a stock?
Hirano: That's a good question but I think of the potential of the economic power of Japan is still there. And if Abe and business leaders work together to energize the Japan's economy then suddenly Japanese companies, Japanese industries will regain the power. Already they hit the historical high ordinary income and operating income level during the first quarter of this year. So they are pretty much in the good shape and they continue to make the investment overseas that can help. They have diversification of the business portfolio and in turn that will help the economic stability and the prosperity of Japan. That will be translated into the share price of the stock.
AD: Let's talk about your global expansion plans and your global operations. I see you've been building up billions of dollars from clients, customers like in the U.S. because you want to expand in U.S. and become one of top 10 lenders there. Why are you building more branches in the U.S. when a lot of the other banks already there are cutting branches?
Hirano: Well please do not misunderstand. The branch offices are a limited scale. That's kind of a combination of the digital strategy and fiscal strategy. So we open up the new brands to a point which focus on digital driven business. But in addition to the digital platform, we thought we should have some physical location in major cities but that's limited scale. So what we are aiming to do is we made the big investments into U.S. on the back nine years ago and our relationship is getting much closer and we are walking the other not only in Japan through our joint venture companies but also doing lots of business in the states to help us planes and Europe, Asia and that's an exception. So that's one thing. Also we like to grow our commercial banking business. That is our core business. In the States we have Union bank on the West Coast and we like to expand their operations to a level which is well regarded in the U.S. markets and we symbolically call it top10. But that should happen in several years' time. We are not in a rush. We will continue to build up the building blocks. And also our second the focus is Asia. We are in Singapore today and you know in particular ASEAN countries are very close to Japan, not only geographically but also business-wise a number of Japanese corporations, automotive companies, electronics companies, chemical companies, pharmaceuticals. They build a huge supply chain in this region and we have been working with them and now we are trying to you know penetrate in each major local market in addition to those you know global corporate finance business. In that we acquired Bank of Ayudhya a few years ago, which is the fifth largest bank in Thailand. We made investments into VietinBank in Vietnam, Security bank in the Philippines. So we'll continue to pursue that localization efforts and digging into retail and middle market where we can expect much potential growth in those regions.
AD: Quick question on the U.S. market I would imagine that post crisis the cost of expansion and competing for a bank because of the red tape would be qiute expensive. Would you benefit from Dodd-Frank therefore?
Hirano: I do not necessarily I think so. The reason is we already made clear we will focus on the more conventional, commercial banking business and we rely on Morgan Stanley's investment banking platform which has deeply to do with Dodd Frank and so on. Of course we will get some benefits but the extent we get the benefit will be less degree than banks like Morgan Stanley, JPMorgan and so on. Buy certainly deregulation is most welcome.
AD: It's a sensitive question but a question I have to ask. Recently in the past year you have had a fine from the CFTC, it was also earlier a fine from the BOE for failure to do some reporting to regulators. It was actually the BOE's biggest fine ever to a bank. Has there been a breakdown in for example in compliance and is this something you're focusing on fixing?
Hirano: I mean the compliance issue is what are the top priority for our management. You know to be you know good corporate citizen we need to respect the all the rules regulations in everywhere we operate. So in that sense something that we need to tighten our control and oversights and also governance structure in each region as well as in headquarters. So we explore the very robust compliance system. But given the facts they are compliance in the government are getting tighter and tighter. So we continue to make investment in that. So we shouldn't compromise you know the slippage or shortcomings in that region. So we are very much serious and we'd like to make ourselves in those compliance area.
AD: Why have you picked Amsterdam as a post-Brexit EU base where number two and three have picked Frankfurt because there's a cap on financial services bonuses in Amsterdam? So why Amsterdam?
Hirano: Well let me repeat again our focus is commercial banking and corporate banking type of business. So we chose the system where we have the you know 100 per cent-owned subsidiary where we have Euro passports. And then we want to put the securities companies function to that 100 per cent subsidiary in Amsterdam. And we do not run a big shares and trading book in Amsterdam rather we'd like to keep the book in London. So I don't think we will face the significant constrained in Amsterdam. So it depends on what kind of business model you are deporting.
AD: Will there be job losses from your London office?
Hirano: Of course there should be some move all the talents in particular salespeople, because you know under the regulation we are conducting the sales from UK to EU area after Brexit it is not allowed. So we are moving a part of a sales team. Our focus on European country or European Continental clients to not only Amsterdam but also Frankfurt and so that we can better serve clients from the nearest office.
AD: Last but not least, let's talk a little digital currency here. Because I see you have joined the international development project spearheaded by UBS to develop a bank to bank digital currency that expedites interfund transfer is the way that I read the report, called utility settlement coin. There were some very well-picked up by the media comments this week by Jamie Dimon of JPMorgan. Why you're putting your confidence in this digital currency venture?
Hirano: Well I mean digital currency is not single-fold. I mean there are different types of digital currencies. In short the digital currency probably Jamie blamed as fraud is public digital currency. There is no responsible party to manage and control and govern. On the contrary we are trying to achieve with UBS and other major financial institutions in the world is private digital currency, which we use the money transfer or settlement or clearing of the securities. So it's a kind of interbank money or securities settlement clearing method. So it has nothing to do with Bitcoin or other type or that there's that currencies which does not have any controlling arm, which has a huge volatility every day and which is not really with the money laundering and other problems. So we believe that that kind of application of digital currency or Bitcoin or sorry block chain will be of great use for us to make every operation more efficient.
AD: Is this something that will eventually be extended beyond banks for institutions or retail investors?
Hirano: At of this point of time you know we limit the scope to interbank but it could well extend to corporate settlements. But perhaps if it comes to consumer, the platform is a little different. So depending on the purposes and objectives we probably a different type of digital currency based systems. So that's the way how I can see it.
AD: So if Jamie Dimon calls it a fraud what word would you use for Bitcoin?
Hirano: Well there are different types of coins. That's about it. There might be a fraud type of point and there should be a very productive efficient use of the coin and so on. So how to use how to design those matters.
AD: My last question. You're here in Singapore what do you aim to achieve?
Hirano: This is a great you know event and there are events and you know we get together on the business executives and political leaders together and here also the vast voices around the table. So I'm really enjoying this event since five, six years ago and this year will not be an exception. And every participant is very much committed to figure out how to help Singapore and Asia to continuously grow in a sustainable manner so that kind of shared value of the participants and sponsor is the great value for this Singapore summit.
AD: Thank you.