Sumitomo Mitsui Financial Group Inc plans to make room for more spending on technology and overseas acquisitions as it moves away from its traditional brick-and-mortar business model in Japan.
Japan’s second-largest lender plans to ring-fence such growth spending from its targeted expense ratio in the three-year business plan starting next April, chief executive officer Jun Ohta said.
At a time of pressure on costs, continuing to lump such outlays with the rest of the bank’s expenses may curtail vital investment in areas such as digital banking and overseas growth, he said.
“It would be worse if necessary investment is not carried out as a result,” Ohta, 61, said in an interview.
He didn’t give specific targets for spending or cost cuts.
Sumitomo Mitsui’s move is new among Japan’s three biggest banks, which like global peers are trying to slash costs while overhauling their business to meet threats and opportunities posed by digital technology.
Rock-bottom interest rates and weak economic growth at home are also driving the lenders to deepen operations overseas.
With an expense ratio of 62.1% in the six months ended September 30, Sumitomo Mitsui has been more successful in controlling costs than Mitsubishi UFJ Financial Group Inc and Mizuho Financial Group Inc.
Under its current three-year plan, the bank pledged to cut ¥50bn ($460mn) of costs annually, including ¥20bn from reorganising branches.
The move to free up growth spending comes even after Sumitomo Mitsui missed out on a bid to buy Indonesia’s PT Bank Permata.
Bangkok Bank Pclsaid late Thursday that it agreed to acquire 89.1% of Permata for about $2.7bn.
Sumitomo Mitsui was vying with the Thai lender to purchase Permata from owners including Standard Chartered Plc, people with knowledge of the matter said earlier this week.
A deal would have come less than a year after the Japanese bank took control of another Indonesian lender, PT Bank Tabungan Pensiunan Nasional.
“Financial business is GDP business, so our growth strategy is betting on where GDP is expanding,” Ohta said in the interview, which took place before the Permata deal was announced. “Indonesia is one of those countries.”
Shares of Sumitomo Mitsui rose 2.1% on Friday morning, as Japanese stocks rallied on news of a US-China trade deal. The bank has gained 11% this year.
Ohta also named two other Southeast Asian countries with a potential for bank acquisitions. The lender has identified possible targets in the Philippines, and is keen to pursue opportunities in Vietnam if authorities there become willing to waive a cap on foreign bank ownership, he said. “We can’t achieve growth unless we erect many such pillars besides Indonesia,” he said.
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