UPDATE 1-Sumitomo Mitsui Trust to expand overseas property non-recourse loans

Tue Jul 29, 2014 5:03am EDT

Related Topics

* Increasing overseas property non-recourse loans $2.9 billion

* Plans to expand beyond office buildings in Singapore and London

* Says loan spreads are bigger overseas than in Japan (Adds details on market, competition, margins)

TOKYO, July 29 (Reuters) - Sumitomo Mitsui Trust Bank plans to increase its outstanding overseas property non-recourse loans to 300 billion yen ($2.95 billion) by March 2017, from 50 billion yen now, a senior executive at Japan's fifth-largest bank by assets said on Tuesday.

"We are expanding overseas non-recourse loans as they have bigger returns than those in Japan," Akira Kamiyo, managing executive officer at the core unit of Sumitomo Mitsui Trust Holdings, told Reuters in an interview.

Japanese banks have been actively increasing overseas loans including project finance, as loan demand remains weak among cash-rich corporate clients at home.

Sumitomo Mitsui Trust Holdings has said it aims to increase outstanding loans to non-Japanese clients to 4.1 trillion yen in the year ending in March 2017, up from 2.5 trillion yen in the year just ended.

He said his bank started providing non-recourse loans for office building projects in Singapore and London in early 2013.

Non-recourse loans are extended to properties and projects that are pledged as collateral and borrowers are not held liable in the case of defaults.

So far, the bank has extended loans for 10 office building projects in Singapore and London, totalling 50 billion yen.

Kamiyo said spread margins, or what the bank charges on top of base interest rates, of these non-recourse loans are roughly 150 basis points, while in Japan, it's hard to negotiate for 100 basis points.

He added, however, competition is growing in London and Singapore as European banks are returning to the market after the retreat in the wake of the global financial crisis.

"It's not an easy ride. So, we are going expand into other geographical areas and property types like commercial and residential," Kamiyo said.

($1 = 101.86 Japanese yen) (Reporting by Taiga Uranaka and Taro Fuse; Editing by Chris Gallagher and Matt Driskill)

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