SMFG says quake to spur manufacturing consolidation

TOKYO Thu Jun 23, 2011 7:51am EDT

Sumitomo Mitsui Financial Group President Koichi Miyata poses for a picture before the Reuters Rebuilding Japan Summit in Tokyo June 22, 2011. REUTERS/Kim Kyung-Hoon

Sumitomo Mitsui Financial Group President Koichi Miyata poses for a picture before the Reuters Rebuilding Japan Summit in Tokyo June 22, 2011.

Credit: Reuters/Kim Kyung-Hoon

TOKYO (Reuters) - Sumitomo Mitsui Financial Group (8316.T) expects increased consolidation in Japanese manufacturing and other sectors as businesses scramble to diversify geographically in the wake of the March 11 disaster.

"Companies have started to diversify their risks. We are going to see those with a geographical focus in eastern Japan merging with west Japan firms," Koichi Miyata, SMFG's president and chief executive officer, said at the Reuters Rebuilding Japan Summit in Tokyo on Wednesday.

Geographical diversification would not stop at the country's borders, and the disaster would only accelerate Japanese businesses' expansion in Asia, including via acquisitions.

"We are going to support such consolidation and mergers and acquisitions, and provide financing," he said.

The March 11 earthquake and tsunami highlighted the vulnerability of supply chains in the country's manufacturing sector, with output by automakers and consumer electronics makers hit hard by a shortage of parts produced in the affected area.

Miyata said, however, that it also showed what a critical part some Japanese manufacturers play in the global supply chain, and those companies would likely be at the center of industry consolidation.

Miyata, 57, who took the helm at Japan's third-largest lender by assets in April, said his bank would pursue growth in Asia by boosting lending in the region, adding that he expected domestic lending to remain flat in the near future.

He said the bank saw a spike in requests for loans in the immediate aftermath of the disaster but only one-third of the amount was borrowed, as many clients did not see an actual need for funds before their business activity fully recovered.

"I think actual demand for loans will emerge sometime around the autumn and thereafter," Miyata said.

He said the bank, in order to build up its loan book quickly in Asia, might buy loans held by European banks, some of which may need to sell assets to meet stricter capital rules.

He also said the bank was interested in either taking equity stakes in or establishing business tie-ups with asset management companies in the region, pointing to potential demand for wealth management services for the burgeoning middle class.

"Countries like China and Thailand will become aging societies in the near future, and there will be a need for asset management to build up retirement savings," he said.

"We really want to find (deals with asset management firms)," he said, although he added there were no specific deals at hand right now.

(Editing by Edmund Klamann)