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Tough Capital Rules Set to Boost SMFG

Stringent capital regulations on western banks will help Sumitomo Mitsui Financial Group double lending in Asia, according to the banking group’s newly appointed president.

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Toru Yamanaka | AFP | Getty Images

Japan’s second largest banking group by market capitalisation is relying on the push to offset its stagnating home market, where lending has generally fallen over the past 19 months.

“There are countries in Europe that have set very high hurdles for their financial institutions, so our balance sheet is an advantage [in Asia],” Koichi Miyata, who took SMFG’s helm in April, told the Financial Times.

Under the new Basel III global capital framework, all banks will be required to hold top-quality “core tier one” capital equal to 7 per cent of their risk-adjusted assets.

Switzerland and several other Nordic nations, however, have imposed higher requirements, with UK regulators signalling they will follow suit. Senior bankers argue that higher capital charges will crimp lending.

SMFG expects its lending in Asia to more than double – from Y3,200bn ($40bn) – within three years. It is also projecting a 50 per cent increase in gross banking profits, to Y150bn, during the same period.

“SMFG has a better chance than before to increase lending in Asia due partly to the tightening in China, which is forcing borrowers to go offshore to places like Hong Kong to raise funds, and the tighter regulatory requirements facing European banks,” Hironori Nozaki, banking analyst at Citigroup in Tokyo, said. “In the past, European corporate lending demand was met by European banks, but they don’t have the capacity to increase lending.”

SMFG’s loan-to-deposit ratio is 70 per cent compared with 148 per cent for UBS.