NEW YORK/TOKYO -- Three Japanese megabanks are increasingly focusing on business overseas and services targeting the wealthy, but they lag far behind their European and North American counterparts in these fields.
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How to gain expertise in these areas and catch up with their western competitors pose a challenge to Japanese megabanks -- Mitsubishi UFJ Financial Group, Inc. (MUFG), Sumitomo Mitsui Financial Group, Inc. and Mizuho Financial Group, Inc. -- as they are striving to increase their competitiveness on the international market.
PurePoint Financial, an online bank under the umbrella of MUFG, opened a flagship branch in an office building near the Rockefeller Center in Manhattan, New York, in August 2017.
Red sofas as well as works by a local photographer on display at the branch draw attention from visitors.
Maha Madain, head of enterprise marketing at PurePoint, said the office is not just a branch but an innovation lab to test new business models.
A customer receives an explanation about opening an account and other transactions from an employee on a one-on-one basis in a private room partitioned by glass. Although transactions with PurePoint can be completed online, the bank has set up 22 branches in the United States to provide explanations to customers.
The amount of deposits with PurePoint doubled to approximately $4 billion, or 440 billion yen over the past year.
Through PurePoint, MUFG is aiming to gain expertise in how to treat customers and raise dollar-based funds. In July this year, MUFG set up a division to supervise banks under its umbrella, which are scattered around the United States and Southeast Asia.
The bank is striving to raise funds through deposits in a stable manner, share the funds with affiliated banks and profit from extending high-yield loans overseas amid the rising cost of gaining dollar-based funds as a result of the U.S.'s stiffened regulations on the financial sector.
"We're determined to expand our overseas commercial banking business to offset a decline in our profits resulting from declining interest rates in Japan and other factors," said Nobuyuki Hirano, president of MUFG.
MUFG places emphasis on its overseas banking because it is one of the few growing fields for megabanks.
Profits from overseas business activities accounted for an average of about 40 percent of the three Japanese megabanks' net operating profits in the business year ending March 2018.
Sumitomo Mitsui FG. is also focusing more on international banking. Specifically, the banking group plans to increase its international divisions' risk assets by some 10 percent over a three-year period up to 2019 while downsizing its domestic personal, corporate and market divisions. The group is putting more energy into an aircraft leasing company it has purchased from a British bank as well as an Indonesian commercial bank.
Since fiscal 2016, Mizuho FG has stepped up its business activities such as mergers and acquisitions, targeting about 300 non-Japanese prime companies.
Megabanks are also paying close attention to business activities targeting the wealthy.
In July, MUFG set up a division for such a business staffed by employees selected from among those at financial institution under its umbrella. Specialized employees give customers advice on investing funds. The financial group is aiming to gain commissions by increasing transactions in financial instruments.
Mizuho FG announced earlier this month that Mizuho Securities Co., which is under the group's umbrella, will strengthen its business of managing assets for wealthy people through a tie-up with a Swiss private bank.
These Japanese megabanks have successfully expanded their overseas business performances largely because the presence of European and North American banks has declined due to the economic crisis caused by the collapse of Lehman Brothers and the European debt crisis.
Still, skeptics raise questions as to whether Japanese megabanks, which lag behind their European and North American counterparts in their ability to make business proposals, can continue to grow overseas as they aim, while their western counterparts are now once again going on the offensive. For example, Japanese banks lost out to a U.S. bank in competition for a position as the head of a group of financial institutions that extended loans to Takeda Pharmaceutical Co. for its takeover of an overseas company for 7 trillion yen.
Japanese megabanks' business activities targeting the wealthy have just started, and these institutions are struggling to catch up with western banks and brokerages.
Satoru Kado, chief researcher at Mitsubishi UFJ Research and Consulting Co., underscores the need for Japanese banks to drastically reform their business practices, pointing out that these institutions have been left behind by rapid changes in the international financial business community.
"Japanese banks have failed to keep pace with the speed of changes going on in the world. These financial institutions need to reduce the costs of maintaining their branches, diversify their human resources and boldly focus on growing fields," Kado said.
The preparation and determination of executives to reform these Japanese megabanks to survive amid strong global competition are being tested.
(Japanese original by Business News Department financial news team)
This is the fifth and final part of a series.