December 26, 2012 2:32 pm

SMFG targets Asia’s growing middle class

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SMFG, one of Japan’s big three banks, plans to expand its Asian consumer finance business to target the growing middle classes in southeast Asia and China.

Koichi Miyata, chief executive of SMFG, told the Financial Times in an interview that Asia was one area where the bank could expand in retail financing.

Japanese banks have been expanding their overseas operations as they struggle to generate revenues in their core lending business in Japan, where demand for loans has slumped amid weak economic activity.

“When I think about my parent’s generation, they borrowed money from the bank and bought a TV or a car on credit” said Mr Miyata. “Southeast Asia is going through a similar phase.”

SMFG’s ambition to expand in consumer finance in Asia comes as the economic development of the region is leading to growing demand for credit among the rapidly expanding middle classes.

In Indonesia, for example, the consumer finance market has been growing at a compounded annual growth rate of over 30 per cent in the past three years, according to Fitch Ratings.

However, the consumer finance market is still at an early stage in many Asian countries.

“When I talk to local banks in southeast Asia, they have a lack of knowhow in this area,” Mr Miyata said, and this could provide SMFG with an opportunity.

“We could tie up with a local bank, provide a local bank with credit finance expertise for a fee, or build our own network of branches.”

In China, only about 10 per cent of auto buyers use bank finance to pay for their purchase, according to the car finance expert GMAC.

Nevertheless, China’s consumer lending balance has grown at an average 29 per cent annual rate from 2005 through 2010, according to a report by Boston Consulting Group published in August 2011.

BCG forecasts a compounded annual growth rate of 45 per cent for consumer finance loans in China and 41 per cent for credit card loans between 2010 and 2015.

SMBC Consumer Finance, the group’s consumer lender, has been building its Asia network since opening a branch in Hong Kong 20 years ago. It has since expanded to Taiwan, Thailand and Shenzhen and Shenyang in mainland China.

Mr Miyata said SMFG would be most competitive in countries such as Thailand, Vietnam and Indonesia where there was “an appreciation of the Japanese brand”, unlike in many western countries where Japanese financial institutions struggle to stand out against larger rivals.

He said the bank would benefit from the same sentiment in countries outside southeast Asia such as India and Turkey.

SMFG wants to increase its foreign assets by nearly 60 per cent by April 2014. The proportion of those assets in Asia has also been increasing.

“Three years ago, our overseas assets were roughly a third in Asia, Europe and the US, respectively,” said Mr Miyata. “Now the split is 40 per cent Asia, 35 per cent US and 25 per cent Europe.”

Other Asian banks are also keen to expand across borders.

Singapore’s DBS group, the largest bank in southeast Asia is aiming to buy Danomon Bank of Indonesia, for $7.2bn in a deal that would make the combined group Indonesia’s fifth-largest lender.

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