Mitsubishi UFJ Financial Group Inc, the world's biggest bank by assets, said it may buy a stake in a Chinese lender, following rivals such as Citigroup Inc in seeking access to the nation's US$1.7 trillion in domestic savings.

 

Mitsubishi UFJ spokesman Takashi Miwa said the lender is considering investing in a bank in China, though no details have been decided. The Tokyo-based lender is in talks to buy a stake in Bank of China Ltd by March in what would be the first tie-up between a Japanese and Chinese lender, the Yomiuri newspaper said yesterday, citing an unidentified person familiar with the plan.

 

Japan's banks, emerging from more than a decade of economic stagnation, have trailed overseas lenders such as Citigroup of the US and the UK's HSBC Holdings Plc in taking stakes in China's State-owned financial institutions. Domestic lending in China expanded by 9.1 percent in the first nine months of last year. In Japan, lending has declined for the past nine years.

 

"This would be a groundbreaking step," said Makoto Haga, who helps oversee US$1.8 billion of Japanese securities, including Mitsubishi UFJ shares, as a fund manager at STB Asset Management Co. Mitsubishi UFJ shares rose 1.9 percent higher to 1.63 million yen at the close of trading in Tokyo.

 

Wang Zhaowen and Zhu Min, Beijing-based spokesmen at Bank of China, the nation's second-biggest bank, didn't answer their telephones.

 

Mitsubishi UFJ aims to offer credit cards and other services to individuals in China and is in talks with the government about the size of an investment, the Yomiuri said.

 

China is pushing its lenders to sell shares as a way to boost their capital and make them more competitive as it opens the industry.

 

By the end of 2006, overseas banks will be allowed to conduct yuan business with China's 1.3 billion citizens.

 

"The purpose of having a strategic investor is to help these Chinese banks improve their operations and corporate governance," said May Meizhi Yan, a Hong Kong-based vice-president at Moody's Investors Services. Japanese banks "won't be regarded as very advanced in those areas."

 

Still, economic revival in Japan signs that seven years of deflation is ending and that land prices are recovering from a collapse in the 1990s have helped strengthen banks' balance sheets.

 

In the three years to March 31, 2005, Japan's seven biggest lenders cleared 19 trillion yen of bad debt that mounted as the nation went through four recessions since 1991.

 

"It's not too late to go to China," said Toyoki Sameshima, a banking analyst at Morgan Stanley. Of Japan's three biggest banks, Mitsubishi UFJ can go abroad, while the others still have lots to do to bring their domestic operations into line, he said.

 

There also aren't many banks worldwide that can afford to invest in China's biggest State-owned lenders, which may count in Mitsubishi's favor, Moody's Yan said.

 

"The introduction of strategic investors has not been as smooth as expected," Yan said. "Bank of China needs to complete it if it wants to list by the first half of 2006."

 

Bank of China plans to raise about US$8 billion in a Hong Kong initial public offering this year, the lender's president, Li Lihui, said in October.

 

Overseas investors are allowed to own as much as 25 percent of Chinese lenders, with any one financial firm owning no more than 20 percent.

 

(China Daily January 5, 2006)