By Taiga Uranak
TOKYO, July 29 (Reuters) - Top Japanese banks are looking to expand their footprints in markets as far apart as Vietnam, Brazil and Malaysia as they seek to counter poor demand for loans at home and benefit from a strong currency.
Mizuho Financial Group , the nation's second-biggest lender, is set to seal a deal soon to buy as much as 20 percent of Vietnam's Vietcombank , sources said.
Mitsubishi UFJ Financial Group , Japan's No.1 bank, last month began talks with CIMB to expand their investment banking ties and take a bigger stake in the Malaysian lender. And Sumitomo Mitsui Financial Group teamed up with Brazil's BTG Pactual in April to offer project finance and advisory services in the Latin American nation.
The overseas focus is understandable. In a flagging economy, bank loans fell for the 19th consecutive month in June from a year earlier, data from the Bank of Japan shows.
The expected boost to loan demand from the March 11 earthquake and tsunami has yet to materialise.
While a surge in loan requests was seen in the immediate aftermath of disaster, it has not lead to an increase in actual lending because many clients approached lenders as a precaution against possible cash needs.
"I expect a pickup in lending later in this year when there is likely to be increased reconstruction-related spending," said Alastair Macdonald, an analyst at Macquarie Capital Securities.
"But the bigger picture remains the same in that companies are still paying down loans rather than investing to expand domestically," he said.
Those realities will be reflected in first-quarter results of the banks, which are due on Friday.
Except for MUFG, which will book an already-flagged hefty gain from its stake in Morgan Stanley , April-June net profits at the lenders are likely to fall from a year earlier.
The banks have forecast this year's profits to either show minimal growth or even dip from the previous year, when they enjoyed strong bond-trading gains.
LOW CREDIT COSTS
Analysts expect the banks are likely to have enjoyed low credit costs for the quarter, thanks to a relatively small number of bankruptcies during the period. Their lending in the disaster-hit areas in northeastern Japan is considered relatively limited.
MUFG is expected to book about 200 billion yen ($2.5 billion) after converting its preferred shares in Morgan Stanley into common stock, raising its stake in the Wall Street firm to 22 percent.
As a result, first-quarter net profit is likely to have come in at 400 billion yen, a more than two-fold jump from a year earlier, Citigroup Global Markets Japan estimates.
The brokerage estimates net profits of Mizuho and SMFG to be 100 billion yen each, down 33.2 percent and 52.8 percent, respectively.
The overseas push and the build-up of investment banking operations will take time to pay off.
The investment banking units of the banks have been hurt by weak client activities and their overseas profits are still too small to offset sluggish Japanese operations.
"Investment banks, especially, their wholesale operations, face a tough environment. (Equity) underwriting business is weak amid a dearth of capital-raising by big companies," said Yuri Yoshida, an analyst at Standard & Poor's.
"The banks cannot make much money on overseas lending since their exposure is relatively limited to those with high credit ratings," she said.
Japan's top three banks are seen as able to comfortably meet new global bank capital rules without the need for fresh fund-raising.
Global regulators have agreed to slap a surcharge on the world's biggest banks on top of the 7 percent minimum capital ratio required in Basel III rules to be phased in from 2013.
MUFG, Mizuho and SMFG are expected to be in lower range of the surcharge on "too-big-to fail" banks, at 1 percent or 1.5 percent.
($1 = 78.515 Japanese Yen) (Editing by Muralikumar Anantharaman)
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