Japan's Sumitomo Mitsui Financial Group Inc. signalled Wednesday it would keep expanding by buying a stake in South Korea's top bank even as it slashed its full-year forecasts due to the global crisis.
Sumitomo Mitsui, one of Japan's top three megabanks, cut its net profit forecast to 180 billion yen (1.86 billion dollars) in the year to March, down two-thirds from its previous estimate of 480 billion yen.
If the forecast holds true, the bank's net profit would tumble 61 percent from last year's earnings of 461.54 billion yen.
Sumitomo Mitsui said it was revising its earnings due to increased costs for the disposal of bad loans and falling value of shareholdings.
Nonetheless, Sumitomo Mitsui said it would acquire up to a two percent stake in South Korea's KB Financial Group, becoming the latest Japanese bank to expand during the crisis.
The Japanese megabank plans to buy the outstanding common shares in KBFG, South Korea's largest banking group, in "hopes of strengthening its operations in Asia," a spokesman for Sumitomo Mitsui said.
The company declined to say how much it would pay, but the agreement comes as the yen soars against the South Korean won.
Sumitomo Mitsui Banking, the mainstay bank of the group, has already had a business alliance with KBFG's Kookmin Bank since March 2007.
Sumitomo Mitsui said in a statement that it and KBFG would cooperate in supporting Japanese companies operating in South Korea in areas including real estate financing.
They also expect that their networks in Asia "will complement each other" as Sumitomo Mitsui has branches in much of Asia while Kookmin Bank has an edge in Central Asia and northeastern China, it said.
Japanese financial institutions, which recovered just several years ago from their own bad loan crisis, have used the global turmoil as a chance to expand by buying into foreign companies.
In July, Sumitomo Mitsui invested about 500 million pounds (789.8 million dollars) in British financial group Barclays PLC, eyeing a business alliance around Asia.
But Sumitomo Mitsui, expanding the reasons for lowering its forecasts, said that the global slowdown has depressed the need for capital.
"We expect an increase in costs associated with credit against the background of an economic slowdown in both Japan and foreign countries," a company statement said.
"In addition to the added cost, (profits are to go down) due to increasing losses from the value of securities holdings as stock markets fall," it said.
Sumitomo Mitsui also revised operating profit for the year. It said it now expected 480 billion yen, down 43.5 percent from the previous May forecast of 850 billion yen.
It revised its revenue projection to 37 trillion yen, down from 39 trillion estimated earlier.
The group said it held 1.3 billion yen worth of products related to subprime securities -- part of the recent US housing bubble when homebuyers took out mortgages they could not afford, offered by bankers engaging in risky lending.
In the first half, the group wrote off 4.6 billion yen worth of losses from investment instruments related to subprime loans, in addition to 10.9 billion yen for items not related to subprime loans.
Source: AFP Asian Edition