Japanese Banks Hope to Expand Loans in Britain

Japanese banks are expanding their efforts to win domestic business in Britain at a time competition for lending to large corporations is intensifying.

Growing interest within Britain’s business community in borrowing from Japan--the world’s largest creditor nation--has helped the banks build up their British lending business.

Japanese banks are London’s largest foreign banking group, but most have no ambitions to build up retail or individual customer-based banking business, banking sources said.

“I do not think any foreign banks can succeed in retail banking in the host nations except for special cases as in California,” a Japanese banker said. In California, Japanese banks own four of the 10 largest banks in retail banking.

Another Japanese banker said major Japanese banks have repeatedly examined the profitability of retail banking in Europe, aiming to become the world’s leading banks by offering a wide range of banking and securities services.

But retail banking abroad is not particularly lucrative, because there are few opportunities to make acquisitions of major European banks, he said.

Instead, Japanese banks will continue to seek acquisitions among specialized financial firms such as investment management companies abroad, to strengthen certain areas of business and intensify wholesale banking in the host countries.

More Local Business

For instance, Sanwa Bank Ltd. plans to extend its London resident branch operation to Edinburgh this year, after setting up an office in Manchester in March, 1987.

Osamu Nagai, deputy general manager at Sanwa Bank in London, said his group’s resident offices outside London aim to develop new business with local firms. “Our main object is to provide closer financial services to local companies there.”

The staff in Sanwa’s Manchester office totals just four, but that is enough to cope with business and services there, because many operations are done in London, Nagai said.

Sanwa’s Edinburgh office will be the fifth regional office for Japanese bank branches in London, Japanese bankers said.

Sumitomo Bank Ltd. initiated the Japanese banks’ advance into regional areas in Britain a few years ago when it established its Birmingham office.

After Sumitomo, Mitsubishi Bank Ltd. opened an office in Birmingham and Fuji Bank Ltd. in Manchester.

However, Japanese bankers do not see their tactics posing a problem for either British authorities or rival banks, because their share of British domestic business is negligible.

Small Market Share

One Japanese bank official estimates Japanese banks’ business with British companies is less than 1%. “Our domestic business in Britain is not so high as others guess” he said.

Anthony Loehnis, Bank of England executive director for overseas affairs, said recently Japanese banks account for only 5% of London’s sterling business and much of their domestic British business is with Japanese firms set up in Britain.

Sumitomo Bank, for example, is the only Japanese bank involved in the British mortgage market. It is the world’s largest bank in terms of market capitalization.

Sumitomo does not have direct relations with private customers because this business has been made through local insurers, say Japanese bankers. No Japanese banks in London have shown signs of following Sumitomo in view of the high costs of this business, they said.