By Taiga Uranaka and Taro Fuse
TOKYO (Reuters) - Japan's fifth-largest lender, Sumitomo Mitsui Trust Bank, is planning to increase its overseas loan balances, with at least 1 trillion to 2 trillion yen ($9.6 billion-$19.2 billion) more capacity available to lend abroad, its top executive said.
"For overseas lending, we are diversifying our portfolio in terms of geography, borrower types, duration and timing," said Hitoshi Tsunekage, president of Sumitomo Mitsui Trust Bank (SMTB), in an interview.
SMTB is a core unit of Sumitomo Mitsui Trust Holdings <8309.T>. While they share historical roots, the bank does not have equity or a management relationship with its bigger rival Sumitomo Mitsui Financial Group <8316.T>. Both Sumitomo and Mitsui are the names of Japan's biggest business groups.
Sumitomo Mitsui Trust's overseas loan balances pale in comparison with Japan's top three banks.
Industry leader Mitsubishi UFJ Financial Group's <8306.T> overseas loans stood at 24.4 trillion yen in the six months that ended in September, while Sumitomo Mitsui Trust's overseas loans were just over 4 trillion yen.
But Sumitomo Mitsui Trust is picking up pace in overseas lending. For the financial year second half, that started in October, the bank plans to increase its overseas loan balances by 600 billion yen.
In addition to syndicated loans and aircraft fiance, Tsunekage said his bank was planning to increase ship finance businesses with non-Japanese clients and this year it opened a Hong Kong branch.
"One of the reasons for opening Hong Kong branch is that there are many potential clients for ship finance there. We are also targeting European and the U.S. clients," Tsunekage said.
The bank said it was working on a ship finance deal of about 10 billion yen in Hong Kong with non-Japanese financial institutions.
Also part of the loan portfolio diversification, Tsunekage said his bank was also investing in high yield loan funds in North America. "It's not that big in amount but we are buying in small lots as portfolio diversification," he said.
The bank's push for overseas lending comes as Sumitomo Mitsui Trust and rivals suffer weak lending profits at home. The bank saw a pickup in its domestic loan balances in the first half but interest margins continued to fall.
"We had thought interest rates would rise gradually, but long-term rates remain low. It's tough, though we have been able to make up for it by growth in fee businesses," he said. ($1 = 103.9950 Japanese yen)
(Reporting by Taiga Uranaka; Editing by Robert Birsel)