## _wp13235

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### I. INTRODUCTION — Context, research question, and key findings
- Cross-border activities of Japanese financial institutions have risen over the past few years, particularly to the Asian region.
- Major Japanese banks have attained an important global and regional presence, particularly in areas of syndicated lending and project finance.
- Foreign claims on Asia have reached levels prior to the global financial crisis during 2005–08.
- Last year alone, overseas loans by major banks are growing by over 20 percent year-on-year.
- Major brokerage firms and life insurers have sought acquisitions or strategic partnership overseas.
- Primary question: whether the current trend of overseas expansion is likely to continue under the government’s new policy framework often referred to as Abenomics.
- The Bank of Japan’s (BoJ) new quantitative and qualitative monetary easing (QQME) framework intends to encourage financial institutions to shift away from government bonds and take on greater exposures of risky assets.
- Empirical approach:
  - Step 1: empirical study of several banking systems in advanced countries to identify determinants of foreign claims.
  - Step 2: apply empirical results to Japanese banking system to assess role of each contributing factor in explaining overseas loan growth.
- Key empirical findings summarized:
  - Several regional and domestic factors have contributed to overseas expansions.
  - Stagnant growth and limited domestic credit demand have added incentives for Japanese financial institutions to seek opportunities abroad.
  - Modest global uncertainty, large growth differentials, and resilience of domestic banking systems are key drivers for cross-border claims.
  - Exchange rate appreciation in the past years might have added incentives for expanding abroad.
- Policy implication headline: trend of expanding overseas is likely to continue but depends on a supportive domestic economy and careful risk supervision.

### II. PAST EXPERIENCE OF OVERSEAS EXPANSION
- Three historical waves:
  - (i) rapid expansion in the 1980s up until the burst of the asset bubbles in 1990;
  - (ii) expansion during the mid-1990s; and
  - (iii) expansion abroad beginning from 2006 but temporarily slowed during the global financial crisis.
- First wave (mid-to-late 1980s):
  - Expansion accompanied sizeable outward foreign direct investments (FDIs).
  - Banks established branches and subsidiaries in major hubs such as London and New York.
  - Following asset-bubble burst in 1990, external bank assets fell by over 20 percent from the peak.
- Second wave (mid-1990s):
  - Increased foreign lending to Asia, often denominated in foreign currency for regional projects.
  - Following the Asian Financial Crisis, external bank assets fell by about 40 percent in two years.
  - Overseas losses contributed to banking crises that lasted until early 2000s and led to significant restructuring and consolidations.
- Long-run net external assets trend:
  - Despite cyclical rises and falls, net external assets for Japanese banks have been on an increasing trend over the last decades.
  - In years leading up to the Asian Financial crisis, Japanese banks relied on foreign-currency financing creating a net liability position.
  - Over time, Japanese banks accumulated net external foreign assets while short-term liabilities remained stable, implying increasing use of domestic yen-denominated funds to finance long-term overseas loans.

### III. RECENT DEVELOPMENTS OF OVERSEAS ACTIVITY (since 2005)
- Aggregate scale and regional focus (as of March 2013):
  - Cross-border consolidated claims of Japanese banks abroad reached near US$3 trillion (about 15 percent of total banking and trust assets) according to BIS as of March 2013.
  - Claims on Asia have more than doubled since the global financial crisis and now account for about 10 percent of total foreign consolidated claims.
- Forms and channels of expansion:
  - Branches, subsidiaries, business alliances, and investments in overseas financial institutions using ownership structures tailored to local markets.
- Role in syndicated loans and project finance:
  - Megabanks became key players in regional and global syndicated loans and project finance, particularly in Asia.
  - Project finance largely related to infrastructure: utilities, transportation, communications.
- Profitability and credit performance:
  - Overseas gross profits account for about 30 percent of total gross profits (about half of which arise from net interest income).
  - Net interest margins for overseas loans improved after the global financial crisis and exceeded those for domestic loans.
  - Credit risks on overseas loans moderate: average risk-monitored loans ratio for overseas lending was about 0.7 percent as of September 2012, much lower than domestic lending (about 2 percent).
  - Default rates on selected overseas loans ranged from 0.4–1.3 percent (Bank of Japan).
- Funding and liquidity characteristics and risks:
  - Local deposit base accounts for about half of funding base but still falls short of total external loans.
  - Loan-to-deposit ratio for overseas loans continues to exceed 100 percent (compared to domestic loan-to-deposit ratio at about 70 percent), contributing to funding risks.
  - Banks rely on short-term finance such as yen-dollar basis and currency swaps and issue foreign exchange-denominated bonds.
  - Funding cost and availability depend on credit ratings; credit downgrades could raise funding costs substantially and precipitate loss of lines of business.
- Nonbank actors:
  - Major life insurers strengthened overseas business, especially in Asia, through acquisitions or affiliations; bancassurance accounts for about 35–70 percent of new business premium in Asia.
  - Leading securities firms expanded overseas but market share outside Japan remains relatively limited in many areas.

### IV. CONTRIBUTING FACTORS FOR INCREASING CROSS-BORDER ACTIVITY
- Four key contributing factors identified:
  - First — Limited domestic opportunities:
    - Domestic credit demand sluggish; large corporations accumulated sizeable surpluses (rising to about 6 percent of GDP).
    - Shrinking net interest margin on loans about 0.6–1.2 percent now relative to about 1.2–2.1 percent in early 2000s.
    - Interest income accounts for more than two-thirds of banks’ total income.
  - Second — Resilience and capacity of major banks:
    - Major banks weathered global financial crisis well, with abundant yen liquidity supported by stable deposits and strengthened capital adequacy (Tier 1 ratio at 12 percent) after the global financial crisis.
    - Exchange rate appreciation until recently may offer additional incentive to expand abroad.
  - Third — Regional and global demand, especially in emerging Asia:
    - Large financing needs for infrastructure in emerging Asia estimated at about US$8 trillion (Asian Development Bank).
  - Fourth — Deleveraging of European banks since 2010:
    - Deleveraging accelerated Japanese banks’ expansion as they stepped up financing to gain market share against scale-back of European banks in the region.
- Differences from prior episodes:
  - Financial institutions moved toward extending loans to non-Japanese entities, now reaching 70 percent of overseas loans.
  - Japanese banks accumulated net external foreign assets while short-term liabilities remained stable.
  - Empirical estimates indicate substitution between domestic and foreign credit contributed modestly (about 5 percentage points) to growth of foreign claims in Japan.

### V. EMPIRICAL ANALYSIS — Data, key regression results, and illustrative decomposition
- Data and methodology:
  - Quarterly consolidated year-on-year growth of foreign claims on an immediate-borrowers basis from BIS for sample 1984–2012 across a panel of banking systems.
  - Explanatory variables: Global factors (VIX index, Fed Fund rate), Regional factors (growth differentials, REER movements), Home factors (domestic interest rates, REER, growth of domestic credit/GDP, Tier 1 capital ratios, nonperforming loan ratios, return on assets).
  - Regression includes fixed effect coefficient γi,j for each origination-destination group.
- Selected empirical findings (summary of reported coefficients and significance from Table 3):
  - Lagged foreign claims: 0.45*** in column (1).
  - Lagged VIX index: -1.01*** in column (1).
  - Capital adequacy (Tier 1 ratio): 17.45*** in column (1).
  - Nonperforming loans: -7.57*** in column (1).
  - Global uncertainty (VIX index) tends to reduce banks’ activities abroad; net adverse impact on Japanese banks relatively less compared to other countries.
  - Real growth differential important: a 1-percentage-point increase in real growth differential could increase foreign claims by about 0.3–1.6 percentage points.
  - Currency appreciation in origination countries tends to increase banks’ activity overseas but coefficients not statistically significant across all specifications.
  - Higher domestic credit growth generally associated with slower growth overseas.
  - Soundness of home banking system matters: higher Tier 1 ratios and lower NPLs associated with higher cross-border activity.
- Illustrative decomposition applied to Japan:
  - Japanese banks’ foreign claims on Asia grew by 103 percent since end-2008.
  - Of the 103 percentage points:
    - About 40 percentage points attributed to a decline of global uncertainty proxied by the VIX index.
    - Regional factors contributed another 20–25 percentage points.
    - Home factors (resilience: strengthened capital adequacy and low NPLs) contributed around one-third of foreign claims growth.
    - Substitution between domestic and foreign credit contributed about 5 percentage points.

### VI. OUTLOOK AND POLICY IMPLICATIONS
- Benefits of overseas expansion:
  - Diversifies income and can improve profitability by better allocating liquidity and developing local markets in Asia.
- Cautions and risks:
  - Rapid expansion risks buying foreign assets at high prices or entering unfamiliar markets with potential heavy losses as in late 1980s and 1990s.
  - Higher overseas exposures add to funding risks requiring continued close monitoring by supervisors.
  - Securing stable and long-term dollar funding remains a risk for Japanese financial institutions.
- Supervisory and funding priorities recommended:
  - Encourage improved resilience by strengthening funding sources and risk management.
  - Close monitoring of overseas maturity mismatch and foreign currency–denominated loans-to-deposits ratios.
  - Cross-border risk monitoring arrangements with foreign supervisory authorities to monitor cross-border risks, including foreign exchange funding risks.
  - Japan’s supervisory agencies signed the Multilateral Framework for sharing information of G-SIBs collected through the FSB Data Gap Initiatives in early 2013.
- Interaction with Abenomics:
  - Cross-border activity likely to continue under the new macroeconomic policy framework.
  - Recovering domestic opportunities may slow the expansion pace but are not expected to reverse the trend unless incomplete policies under Abenomics elevate domestic financial stability risks.
  - Empirical estimates suggest global and regional factors play a more prominent role than domestic factors in the growth of Japanese cross-border claims.

### VII. CONCLUSIONS — Synthesis and recommended stance
- Cross-border activities of Japanese financial institutions have risen in recent years, particularly to the Asian region.
- Principal drivers:
  - Relative resilience of Japanese banks during the global financial crisis.
  - Stagnant growth and low interest margins in Japan incentivized seeking opportunities abroad.
  - Growth in Asia and deleveraging of European banks in the region contributed to a rise of cross-border lending.
- Structural and behavioral changes versus earlier episodes:
  - Funding sources and areas of finance are broader than previous episodes.
  - Japanese banks increasingly finance non-Japanese entities (about 70 percent of overseas loans).
  - Banks have accumulated net external foreign assets while short-term liabilities remained stable, suggesting domestic yen funding for long-term external loans.
- Outlook and policy stance:
  - As global recovery and growth in Asia continue, Japanese banks likely to continue expansion.
  - Stronger domestic growth could mitigate pace but unlikely to reverse long-term trend given prominence of global and regional factors.
  - Gradual and cautious expansion recommended given funding and supervisory risks and lessons from late 1980s and 1990s.

*Source: _wp13235 (PDF content provided).*

### References ................................................................................................

### I. INTRODUCTION

### Context of recent cross-border expansion
- Cross-border activities of Japanese financial institutions have risen over the past few years, particularly to the Asian region.
- Major Japanese banks have attained an important global and regional presence, particularly in areas of syndicated lending and project finance.
- Foreign claims on Asia have reached levels prior to the global financial crisis during 2005–08.
- Last year alone, overseas loans by major banks are growing by over 20 percent year-on-year.
- Major brokerage firms and life insurers have sought acquisitions or strategic partnership overseas.

### Historical comparison: three waves of expansion
- The current trend is compared to previous episodes of overseas expansion by Japanese financial institutions, broadly classified in three waves:
  - (i) the rapid expansion in the 1980s up until the burst of the asset bubbles in 1990;
  - (ii) the expansion during the mid-1990s; and
  - (iii) the expansion abroad beginning from 2006 but temporarily slowed during the global financial crisis.

### Research question and methodology
- Primary question: whether the current trend of overseas expansion is likely to continue under the government’s new policy framework often referred to as Abenomics.
- The Bank of Japan’s (BoJ) new quantitative and qualitative monetary easing (QQME) framework—part of the three-pronged strategies to revive growth and exit deflation—intends to encourage financial institutions to shift away from government bonds and take on greater exposures of risky assets (such as loans and investment securities).
- The paper analyzes factors contributing to recent expansion in two steps:
  - First, an empirical study of several banking systems in advanced countries is conducted to identify the determinants of their foreign claims.
  - Second, the empirical results are applied to Japanese banking system to assess the role of each contributing factor in explaining overseas loan growth.
- The paper builds on literature on cross-border banking (Berger, DeYoung, Genay, and Udell 2000, De Haas and Lelyveld 2010, De Young, Evanoff, and Molyneux 2009) and on international capital flows (Fratzscher 2012, Jotikasthira, Lundblad, and Ramadorai 2012).

### Key empirical findings presented
- Several regional and domestic factors have contributed to overseas expansions.
- Stagnant growth and limited domestic credit demand have added incentives for Japanese financial institutions to seek opportunities abroad.
- Modest global uncertainty, large growth differentials, and the resilience of domestic banking systems are key drivers for cross-border claims.
- Outside Japan, growth in Asia and deleveraging of European banks in the region contributed to a rise of cross-border lending.
- The exchange rate appreciation in the past years might have added incentives for expanding abroad.

### Policy implications and outlook
- The paper argues that the trend of expanding overseas is likely to continue, but will depend on a supportive domestic economy and careful risk supervision.
- Growth in Asia and sufficient liquidity at home would imply the trend of expanding abroad is likely to continue.
- Although stronger domestic growth might slow the expansion pace, it is not expected to reverse the trend unless incomplete policies under Abenomics elevate domestic financial stability risks.
- Increasing cross-border activity could add to funding risks while exacerbating supervisory challenges that require continued close monitoring.

*Source: _wp13235 - References ................................................................................................*

### Section II takes stock of the past experience of Japanese

### _wp13235 - Section II takes stock of the past experience of Japanese

### II. EXPANDING ABROAD: PAST EXPERIENCE AND RECENT DEVELOPMENTS — A. Past Experience of Overseas Expansion by Japanese Financial Institutions
- Japanese financial institutions attempted several times to expand abroad over last three decades; success was mixed.
- During three waves of earlier expansions, financial institutions generally did not secure a major global footing, except a few megabanks and securities firms.
- First wave: mid-to-late 1980s
  - Expansion accompanied sizeable outward foreign direct investments (FDIs).
  - Banks established branches and subsidiaries in major hubs such as London and New York.
  - Driven by strong growth in Japan, sizeable FDIs of Japanese corporations, yen appreciation, and desire to diversify lending.
  - Following asset-bubble burst in 1990, external bank assets fell by over 20 percent from the peak.
- Second wave: mid-1990s (increased foreign lending to Asia)
  - Loans often denominated in foreign currency related to regional investment projects.
  - Following the Asian Financial Crisis, banks incurred sizeable valuation losses and nonperforming loans rose sharply.
  - External bank assets fell by about 40 percent in two years.
  - Overseas losses, among domestic problems, contributed to banking crises that lasted until early 2000s and led to significant restructuring and consolidations, creating a concentrated market with a few megabanks, securities firms, and life insurers.
- Net external assets trend
  - Despite cyclical rises and falls, net external assets for Japanese banks have been on an increasing trend over the last decades.
  - In years leading up to the Asian Financial crisis, Japanese banks relied on foreign-currency financing creating a net liability position.
  - Over time, Japanese banks accumulated net external foreign assets while short-term liabilities remained stable, implying increasing use of domestic yen-denominated funds to finance long-term overseas loans.

### II. EXPANDING ABROAD: RECENT DEVELOPMENTS — B. Recent Developments of Overseas Activity
- Overall trend since 2005
  - Overseas activity rose again since 2005 despite a temporary decline during the peak of the global financial crisis.
  - Japanese financial system remained resilient to the global financial crisis; banks broadened financing to non-Japanese entities and local demand.
- Banking sector: cross-border activity and scale (as of March 2013)
  - Cross-border consolidated claims of Japanese banks abroad reached near US$3 trillion (about 15 percent of total banking and trust assets) according to BIS as of March 2013.
  - Claims on Asia have more than doubled since the global financial crisis and now account for about 10 percent of total foreign consolidated claims.
  - Exposures to Europe grew more moderately and significantly slowed in peripheral European countries after the global financial crisis.
- Forms of expansion
  - Banks increased overseas presence via branches, subsidiaries, business alliances, and investments in overseas financial institutions using ownership structures tailored to local markets.
- Role in syndicated loans and project finance
  - Japanese megabanks became key players in regional and global syndicated loans and project finance, particularly in Asia.
  - Megabanks stepped up project finance and syndicated loans business because of strong balance sheets and long-term lending approaches.
  - Project finance largely related to infrastructure: utilities, transportation, communications.
  - Three megabanks increased average ranking and market share, particularly following the receding of European banks.
- Performance of overseas lending vs domestic lending
  - Overseas gross profits account for about 30 percent of total gross profits (about half of which arise from net interest income).
  - Net interest margins for overseas loans improved after the global financial crisis and exceeded those for domestic loans.
  - Credit risks on overseas loans moderate: average risk-monitored loans ratio for overseas lending was about 0.7 percent as of September 2012, much lower than domestic lending (about 2 percent).
  - Syndicated loans to foreign firms usually carry high investment ratings; syndicated loans to firms in emerging markets are relatively small and about one-fifth have covenants that limit credit risks.
  - Project finance often backed by underlying infrastructure assets; default rates on selected overseas loans ranged from 0.4–1.3 percent (Bank of Japan), much lower than respective loan margins.
- Funding and liquidity risks
  - Foreign currency and maturity mismatches likely to rise as growth of long-term funding may fall short of total external loans.
  - Local deposit base (e.g., corporate deposits) accounts for about half of funding base but still falls short of total external loans.
  - Banks rely on short-term finance such as yen-dollar basis and currency swaps and issue foreign exchange-denominated bonds.
  - Loan-to-deposit ratio for overseas loans continues to exceed 100 percent (compared to domestic loan-to-deposit ratio at about 70 percent), contributing to funding risks.
  - Funding cost and availability depend on credit ratings; credit downgrades could raise funding costs substantially and precipitate loss of lines of business.
- Nonbank sector: life insurers and securities firms
  - Major life insurers strengthened overseas business, especially in Asia, through acquisitions or affiliations with local insurers, typically via incremental capital and minority stakes.
  - Life insurers broaden products (e.g., medical insurance) and rely on distribution channels such as bancassurance; bancassurance accounts for about 35–70 percent of new business premium in Asia.
  - Risks and returns for life insurers modest as majority of overseas investments are minority interests.
  - Leading securities firms expanded overseas (outward FDIs on financial services surged in 2008 due to Nomura’s acquisition of Lehman Brothers’ European arms) but later scaled back after losses.
  - Market share outside Japan by leading Japanese securities firms remains relatively limited in many areas due to limited expertise executing services outside Japan and relatively higher funding cost on foreign-currency instruments, possibly due to lower credit ratings.

### III. CONTRIBUTING FACTORS FOR INCREASING CROSS-BORDER ACTIVITY
- Four key contributing factors identified
  - First: Limited domestic opportunities
    - Domestic credit demand sluggish in past few years due to stagnant growth; large corporations accumulated sizeable surpluses (rising to about 6 percent of GDP).
    - Structural constraints: high leverage among SMEs, population aging, sluggish growth in regions.
    - Lingering deflation limited decline of real interest rate; shrinking net interest margin on loans (about 0.6–1.2 percent now relative to about 1.2–2.1 percent in early 2000s) limits banks’ core profitability; interest income accounts for more than two-thirds of banks’ total income.
  - Second: Resilience and capacity of major banks
    - Major banks weathered global financial crisis well, with abundant yen liquidity supported by stable deposits and strengthened capital adequacy (Tier 1 ratio at 12 percent) after the global financial crisis, in part to meet Basel III requirements.
    - Exchange rate appreciation until recently may offer additional incentive to expand abroad.
  - Third: Regional and global demand, especially in emerging Asia
    - Large financing needs for infrastructure in emerging Asia estimated at about US$8 trillion (Asian Development Bank), generating demand for cross-border financial activity.
    - Major banks benefited from increasing outward FDI and trade links of Japanese firms.
  - Fourth: Deleveraging of European banks since 2010
    - Deleveraging accelerated Japanese banks’ expansion as they stepped up financing to gain market share against scale-back of European banks in the region.
- Differences from prior episodes
  - Over past few years, financial institutions moved toward extending loans to non-Japanese entities, now reaching 70 percent of overseas loans.
  - Japanese banks accumulated net external foreign assets while short-term liabilities remained stable, suggesting increased financing of long-term overseas loans with domestic yen-denominated funds.
  - Empirical estimates indicate substitution between domestic and foreign credit contributed modestly (about 5 percentage points) to growth of foreign claims in Japan.

### IV. EMPIRICAL ANALYSIS IN CROSS-BORDER ACTIVITY OF JAPANESE BANKS
- Data and methodology
  - Uses quarterly consolidated year-on-year growth of foreign claims on an immediate-borrowers basis from BIS for sample 1984–2012 across a panel of banking systems (origination: advanced countries including Japan; destinations: Emerging Asia, Developing Europe, Latin America).
  - Explanatory variables classified into Global factors (VIX index, Fed Fund rate), Regional factors (growth differentials, real effective exchange rate movements), and Home factors (domestic interest rates, REER, growth of domestic credit/GDP, Tier 1 capital ratios, nonperforming loan ratios, return on assets).
  - Regression includes fixed effect coefficient γi,j for each origination-destination group.
- Key empirical findings (Table 3 summary)
  - Global uncertainty (VIX index) tends to reduce banks’ activities abroad; net adverse impact on Japanese banks relatively less compared to other countries.
  - Destination interest rates (proxy for tightness of financing conditions) play some role.
  - Real growth differential important: a 1-percentage-point increase in real growth differential could increase foreign claims by about 0.3–1.6 percentage points.
  - Currency appreciation in origination countries tends to increase banks’ activity overseas but coefficients not statistically significant across all specifications.
  - Higher domestic credit growth generally associated with slower growth overseas (possible substitution between home and abroad credit).
  - Soundness of home banking system matters: higher capital adequacy (Tier 1 ratio) and lower nonperforming loan ratios associated with higher cross-border activity.
  - Specific coefficients and statistical significance noted in Table 3 (e.g., Lagged foreign claims: 0.45*** in column (1); Lagged VIX index: -1.01*** in column (1); Capital adequacy (Tier 1 ratio): 17.45*** in column (1); Nonperforming loans: -7.57*** in column (1)).  
- Application to Japan (illustrative decomposition)
  - Japanese banks’ foreign claims on Asia grew by 103 percent since end-2008.
  - Of the 103 percentage points:
    - About 40 percentage points attributed to a decline of global uncertainty proxied by the VIX index.
    - Regional factors contributed another 20–25 percentage points.
    - Home factors (resilience: strengthened capital adequacy and low NPLs) contributed around one-third of foreign claims growth.
    - Substitution between domestic and foreign credit contributed about 5 percentage points.

### IV. OUTLOOK AND POLICY IMPLICATIONS
- Benefits and cautions
  - Overseas expansion can diversify income and improve profitability by better allocating liquidity and developing local markets in Asia.
  - A gradual and cautious approach is warranted; rapid expansion risks buying foreign assets at high prices or entering unfamiliar markets with potential heavy losses as in late 1980s and 1990s.
- Supervisory and funding priorities
  - Higher overseas exposures add to funding risks requiring continued close monitoring by supervisors.
  - Securing stable and long-term dollar funding remains a risk for Japanese financial institutions.
  - Supervisors should encourage improved resilience by strengthening funding sources and risk management, including close monitoring of overseas maturity mismatch and foreign currency–denominated loans-to-deposits ratios.
  - Cross-border risk monitoring arrangements with foreign supervisory authorities can help monitor cross-border risks, including foreign exchange funding risks.
  - Japan’s supervisory agencies signed the Multilateral Framework for sharing information of G-SIBs collected through the FSB Data Gap Initiatives in early 2013 based on FSB discussions.
- Interaction with Abenomics and domestic outlook
  - Cross-border activity likely to continue under the new macroeconomic policy framework.
  - Policies under Abenomics mostly affect domestic outlook and exchange rates in exiting deflation and lifting growth; recovering domestic opportunities may slow expansion pace.
  - Empirical estimates suggest global and regional factors play a more prominent role than domestic factors in the growth of Japanese cross-border claims.
  - An incomplete set of policies under Abenomics could pose risks for financial stability that could halt overseas expansion.

### V. CONCLUSIONS
- Cross-border activities of Japanese financial institutions have risen in recent years, particularly to the Asian region.
- Key drivers:
  - Relative resilience of Japanese banks during the global financial crisis allowed further foreign exposures.
  - Stagnant growth and low interest margins in Japan incentivized seeking opportunities abroad.
  - Growth in Asia and deleveraging of European banks in the region contributed to a rise of cross-border lending.
- Structural and behavioral changes vs earlier episodes:
  - Funding sources and areas of finance are broader than previous episodes.
  - Japanese banks increasingly finance non-Japanese entities (now about 70 percent of overseas loans).
  - Banks have accumulated net external foreign assets while short-term liabilities remained stable, suggesting domestic yen funding for long-term external loans.
- Outlook:
  - As global recovery and growth in Asia continue, Japanese banks likely to continue expansion.
  - Stronger domestic growth could mitigate pace but unlikely to reverse long-term trend given prominence of global and regional factors.
  - Higher overseas exposures add funding and supervisory risks; gradual and cautious expansion is recommended in light of earlier episodes in late 1980s and 1990s.

*Source: _wp13235 - Section II takes stock of the past experience of Japanese (PDF content provided).*

### REFERENCES

### _wp13235 - REFERENCES

### References
- Bank of Japan (2013) “Financial System Report”, April 2013, Bank of Japan.
- Berger A., R. DeYoung, H, Genay, and G. Udell (2000) “The Globalization of Financial Institutions: Evidence from a Cross-Border Banking Performance”, Brookings-Wharton Paper on Financial Services, 2000, vol. 3, pp. 23-120.
- De Haas, R., and I. Lelyveld (2010) “Internal Capital Markets and Lending by Multinational Bank Subsidiaries”, Journal of Financial Intermediation, Volume 19, Issue 1, January 2010, Pages 1–25.
- De Young, R., D. Evanoff, and P. Molyneux (2009) “Mergers and Acquisitions of Financial Institutions: A Review of the Post-2000 Literature”, Journal of Financial Services Research, December 2009, Volume 36, Issue 2-3, pp 87-110.
- Fitch Ratings (2013) “Japanese Mega Banks’ Offshore Growth Continues”, Fitch Ratings Special Report, February 2013.
- Focarelli, D., and Pozzolo, A.F. (2005) “Where do Banks Expand Abroad? An Empirical Analysis”, The Journal of Business, vol.78, no. 6, November 2005.
- Fratzscher, M. (2012) “Capital Flows, Push versus Pull Factors and Global Financial Crisis” Journal of International Economics, November 2012, vol. 88(2), pp.341-356.
- International Monetary Fund (2013) “Spillover Report” August 2013.
- Jotikasthira, P., C. Lundblad, and T. Ramadorai (2012) “Asset Fire Sales and Purchases and the International Transmission of Fudning Shocks” Journal of Finance, December 2012, vol.67 (6), pp.2015-2050.
- Nolle, D. and R. Seth (1996) “Do Banks Follow Their Customers Abroad?” Federal Reserve Bank of New York Research Paper, No. 9620, August 1996.
- Shirota T. (2013) “What is the Major Determinant of Credit Flows through Cross-border Banking?”, Bank of Japan Working Paper Series, No.13-E-5, March 2013.
- Thompson Reuters (2012) “Quarterly Reviews on Deals Intelligence” various weblinks— http://dmi.thomsonreuters.com/DealsIntelligence/QuarterlyReviews

### Appendix — Selected Overseas Merger and Acquisitions of Life Insurers
- Date / Life insurer / Target / Value (bn yen) / Remarks
  - 2009 / Nippon Life / United States Prudential Insurance - America
  - Nov-10 / Meiji Yasuda Life / Germany Talanx / 34 / convertible bonds
  - Dec-10 / Dai-i-chi Life / Australia TAL Ltd / 106 / increasing stake from 29 percent to fully-
  - Dec-10 / Dai-i-chi Life / United States Janus Capital Group / a stake of 15-20 percent.
  - Mar-11 / Nippon Life / Reliance Life Insurance / 48 / acquire stake of 26 percent
  - Jan-12 / Meiji Yasuda Life / Poland Europa Group / acquired 33.46 percent stake with its German business alliance partner Talanx International
  - Jan-12 / Meiji Yasuda Life / Warta Group / acquired 30 percent stake
  - May-12 / Meiji Yasuda Life / Indonesia PT Avrist Assurance / Incrased shareholdings to 23 percent.
- Source: Fitch Ratings.

### Appendix — Recent Major Equity Investments and Overseas Acquisitions by Major Japanese Banks
- Table headings: Country / Name / Stake acquired (in percent) / Amount (in yen bn)
- Mitsubishi UFJ Financial Group 1/
  - Jun-06 / China / Bank of China Limited / 0.2 / 21
  - Apr-07 / Malaysia / CIMB / 4.1 / 45
  - Dec-07 / Indonesia / Bank Nusantara Parahyangan Tbk / 15.2
  - Jun-08 / Hong Kong / DahSing Financial Holdings / 15.0
  - Oct-08 / US / Morgan Stanley / 21.8 / 9 43
  - Oct-08 / UK / Aberdeen Asset Management / 18.8
  - Nov-08 / US / Union BanCal Corp / 100.0 / 357
  - Apr-10 / US / Tamalpais Bank / 100.0
  - Apr-10 / US / Frontier Bank / 100.0
  - Nov-10 / UK / RBS 1/ / 435
  - Apr-11 / China / SWS Mu Fund Management Co. / 33.3
  - Dec-12 / Vietnam / Comm. Bank for Industry and Trade / 20.0 / 63
- Sumitomo Mitsui Financial Group 1/
  - Nov-07 / Vietnam / Vietnam EXIM Commercial Bank / 15.0 / 25
  - Jul-08 / UK / Barclays / 1.4 / 83
  - Dec-08 / Korea / KB Financial Group / 1.1
  - Jan-10 / Hong Kong / Bank of East Asia / 9.5 / 53
  - Jun-10 / India / Kotak Mahindra Bank / 4.5 / 27
  - Jan-12 / US / Moelis and Co. / 7
  - Jan-12 / UK / RBS 1/ / 505
  - Mar-12 / Indonesia / PT Iodonesia Infrastructure Finance / 14.9
  - Apr-12 / China / China Post and Capital Fund Mgt. / 24.0
- Mizuho Financial Group
  - Sep-06 / Korea / Shinhan Financial Group / 1.6 / 37
  - Apr-07 / China / China CITIC Bank / 0.2 / 6
  - Jan-08 / US / Merrill Lynch / 130
  - Aug-08 / US / Evercore Partners Inc. / 14.7 / 13
  - Nov-10 / US / BlackRock Inc. / 41
  - Aug-11 / Indonesia / Imora Motor/ Balimor Finance / 51.0
  - Sep-11 / Vietnam / Vietcombank / 15.0 / 43
- 1/ Acquisition of project finance assets for MUFG and acqusition of aircraft leasing assets for SMFG.

*Source: _wp13235 - REFERENCES (PDF)._

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp13235.pdf_