The IMF's recent Financial Stability report shows that Japanese and Chinese banks have expanded their global reach since the financial crisis. Both groups have made headway at the expense of US and European banks, who have been encumbered by growing regulatory requirements and the necessity or fortifying their balance sheets.
Japanese banks have been more active than Chinese banks. Between 2009 and 2013, average ratios of over- seas loans to total loans for the 3 largest Japanese banks grew from 15% to 25%, while for the four largest Chinese banks the ratios grew from 6.1% to 9.2%.
Foreign Assets, Lending as % of Total Loans: Japanese & Chinese Banks Compared, 2009-2013
Source: IMF Financial Stability Report, April 8, 2015
The report states that motivating factors differ for the two groups: "Chinese banks remains primarily driven by a follow-your-customer strategy (while) limited domestic growth prospects and opportunities abroad for Japanese banks gave added incentives for them to expand."
The two groups also differ by the types of business that they do. Chinese banks have been focused on corporate loans, which account for 80% of their loan portfolios, while Japanese banks have more diversified businesses, including longer-term project financing and syndicated lending.
Their geographical reach also differs: Chinese banks tend to expand their global presence by opening foreign offices and branches and their increase in business coverage mainly occurred in Hong Kong. In contrast, Japanese banks have completed major mergers and acquisitions to expand globally with three megabanks spending more than 1 trillion yen acquiring companies ranging from banks to asset manage- ment companies between 2012 and 2014.
With Chinese and Japanese companies and individuals increasingly active overseas, this trend looks likely to continue playing out in the coming years. However, each group faces the challenge of raising deposits in their new markets, something which - despite their expansion - they have largely failed to do, leaving them dependent on external funding and at risk of vulnerabilties stemming from currency and liability mismatches.