Singapore banks eye a share of Japanese FDI market

As more Japanese small- and medium-size enterprises (SMEs) seek to expand in Southeast Asia, banks in Singapore are eyeing lending opportunities.(ChannelNewsAsia)

United Overseas Bank (UOB), for example, has reported a sizeable jump in deposit flows from Japanese clients. The bank has recently received approval from Japan’s Foreign Bank Agency Business to offer regional financial products and services in the country, and extend regional Foreign Direct Investment (FDI) advisory services to companies venturing out. Deposit flows from Japanese clients in the first quarter of this year amounted to more than 80 per cent of deposit flows from all of its Japanese clients in the whole of 2015, UOB said.

Based on data from the Japan External Trade Organization (JETRO), annual foreign direct investment (FDI) to the 10-member Association of South East Asian Nations (ASEAN) bloc reached US$20 billion in 2015, double that of the combined FDI to China and Hong Kong. Last year was the third straight year in which Japanese investment volumes to Southeast Asia outstripped investment volumes to China, as the relative attractiveness of the world’s second-largest economy dims. “After 2010, there was a pretty sharp acceleration in investment in ASEAN. There are both push and pull factors — factors that are pushing (Japanese) companies out of China, or at least getting them to consider more of a ‘China plus one’ strategy as opposed to concentrating almost all production in China,” said Ms Izumi Devalier, a Hong Kong-based economist at HSBC.

Some of these push factors include rising labour costs in China and simmering political tension between the two countries, while the pull factors include relatively low wages in ASEAN countries and the growth potential of ASEAN markets for Japanese goods and services. Singapore banks can position themselves as being able to serve a niche, as Japanese SMEs venturing out may not always be well-served by the Southeast Asian offshoots of Japanese mega banks like Mizuho, Sumitomo Mitsui Banking Corporation and Bank of Tokyo-Mitsubishi UFJ.

“Even Japanese SMEs are accelerating the offshoring process. The mega banks didn’t really cater to the needs of these Japanese SMEs doing business in ASEAN,” said Ms Devalier. “The main customers of the mega banks are the big blue-chip firms like Toyota, Hitachi. They just took that business model and client rolodex and replicated that service in ASEAN.”

DBS and UOB — respectively the largest and third-largest bank in Southeast Asia in asset terms — told Channel NewsAsia that their advantage lies in their regional network and connections. For UOB, this translates into linking Japanese clients seeking joint ventures with potential business partners. “Many of our customers are saying they find it effective that we connect them to the region and the right party very quickly,” said Mr Sam Cheong, the 46-year-old head of UOB’s Group FDI Advisory Unit.

“For example, when our clients enter an emerging market such as Vietnam, we have the partnerships with government agencies and professional service providers to help them understand the relevant regulations and policies.” Since late 2015, Mr Cheong has been leading a dedicated team serving Japanese clients. The other team members are Mr Tan Hong Chen, 35, and Ms Naoko Inoue, 34.

To date, UOB has helped Japanese SMEs expand into the region’s automotive, food and beverage (F&B), electronics, professional services and information technology sectors. UOB said it collaborates with Japan Finance Corporation and regional banks in Japan to help Japanese SMEs explore business and investment opportunities in Southeast Asia. In Indonesia, DBS has had a partnership with Sumitomo Mitsui Trust Bank (SMTB) since 2012. “Working with SMTB, DBS Indonesia provides Japanese companies with wider and more sophisticated banking products and services such as trade finance, cash management and foreign exchange services,” said a DBS spokesperson.