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Cross-border tie-ups key to customer service in Japan, says Seibu Shinkin chief

? Seibu Shinkin Bank wants to use new foreign partnerships to help SME clients grow outside of Japan

? In a negative interest rate environment, the Tokyo-based bank shuns competing on price

Tokyo-based Seibu Shinkin Bank used 2016 to enter into a range of cooperation agreements with partners outside its home market in Japan to help its 7,000 small and medium-sized enterprise clients that are looking to grow their businesses abroad. Kanji Ochiai, Seibu Shinkin Bank president since 2010, outlined in an interview why the lender, like other shinkin, is shaping a growth strategy that is taking it far afield along with its clients.

Seibu Shinkin Bank reported a loan-to-deposit ratio in the fiscal year ended March 31, 2016, of 76.1%, compared with the average 50.0% among the country's other cooperative lenders or shinkin, according to the Japanese magazine Financial Journal. By the end of 2016, Seibu Shinkin's loan-to-deposit ratio was 79.85%, the bank's chief noted. In its interim report for the fiscal half-year ended Sept. 30, 2016, the lender reported net profit of ¥2.7 billion, compared with ¥3.8 billion in the year-ago period.

The following is an edited transcript of the interview.

S&P Global Market Intelligence: Can you tell us a bit about why the bank is pursuing foreign agreements?

Kanji Ochiai: An increasing number of Japan's small and medium-sized enterprises are [looking to do business] overseas, especially to Southeast Asia to supply major Japanese companies that have already moved overseas.

We entered into a cooperation agreement with Metropolitan Bank & Trust Co. [of the Philippines] in April 2016 to help our corporate customers that are either already doing or are getting ready to do business there. The Philippines is very friendly to the Japanese and Japan. If we were to only set up a representative office and send maybe three employees there, we would be limited in what we could do and would not be able to form the good networks with the Philippine business world that we need in order to help our customers in the Philippines]. Metropolitan Bank is the No. 2 bank [in that country] and has strong business networks. But it only has a Tokyo branch in Japan, so when they need help with Philippine clients in Japan, we can provide our business network and services to them.

You also have a tie-up with U.S.-based United Parcel Service Ltd. and the Hong Kong Trade Development Council. How can these help your clients?

We can connect UPS to our clients who need to ship goods inside Japan and overseas and our clients get a discount in [using UPS' logistics services].

And we formed a tie-up with the Hong Kong Trade Development Council in November last year because they can introduce our clients to business partners [overseas]. It has strong networks not only in Hong Kong and China, but also in the U.S. and Europe.

Do you have plans for more agreements like these?

Yes. We would like to have more agreements with banks in ASEAN countries such as Indonesia, Malaysia and Cambodia.

How much are you earning from your overseas business?

We are a domestic financial institution, so we are not trying to generate revenues from overseas. To start providing loans and other business overseas, you need to receive international standard bank status from regulators along the lines of what Japanese megabanks have done. With our current status as a domestic standard financial institution, we can only do what we are doing now, helping our clients grow. That is why we do not set up representative offices or branches but use the resources of our partners. Some regional banks have representative offices with one or two Japanese staff [overseas] but what can they do there? Japanese regional banks also are domestic standard banks, so they cannot expand their businesses overseas to make up for slow loan growth and falling net interest margins domestically.

After the Bank of Japan's negative interest rate policy took effect in February 2016, you announced an increase of 0.01% for fixed deposits of three to four years and an increase of 0.02% for five-year fixed deposits while offering maximum 50% discounts on loans to SMEs. Only two other shinkin banks, Kumamoto Dai-ichi Shinkin Bank and Onga Shinkin Bank, raised rates. What impact has this had on your business?

Our deposits and loans increased a great deal, but not just because of the special interest rate but also our sales efforts. Our total deposits increased to ¥1.743 trillion at the end of December from ¥1.644 trillion at the end of March 31, 2016, while our loans rose to ¥1.392 trillion at the end of December from ¥1.250 trillion.

We are very competitive. For example, the average lending rate at our Nihonbashi branch is 2% while other regional banks' lending rates are [between] 0.4% and 0.6%.

If you help SMEs create better business models or introduce them to new customers, they are willing to pay higher loan rates. We don't compete on price. Most other banks compete only with lower loan rates.

As of Feb. 3, US$1 was equivalent to ¥112.37.