Sumitomo Mitsui Financial Group (SMFG), Japan's third-largest bank by assets, plans to raise up to $8.7 billion (Dh32bn) by issuing new shares to meet stricter capital requirements and for potential acquisitions in Asia, people with knowledge of the matter said.
SMFG is the latest big Japanese lender to tap a modest stock rebound for much-needed fundraising. Industry leader Mitsubishi UFJ Financial Group raised about ¥1 trillion (Dh40bn) last month through a share sale.
Without these fundraisers, Japanese banks would fall short of new global capital requirements, analysts have said. The SMFG move is likely to put pressure on second-ranked Mizuho Financial Group, which has yet to announce fundraising plans.
"If the news is confirmed, the capital enhancement would be positive from a credit perspective," said Masahiko Watanabe, a credit analyst at Fitch Ratings in Tokyo.
"However, Sumitomo Mitsui's underlying profitability is still not so strong, so how they improve their profitability remains the challenge."
The fundraising will be SMFG's second in less than a year, after raising ¥861 billion in July.
SMFG's board will meet as early as Wednesday to formally approve the ¥800bn fundraising, said five people, who were not authorised to speak publicly about the matter. The bank has begun preparing for the sale and will decide the terms by the middle of this month, they said.
The bank's president Keisuke Kitayama told Reuters Television that while nothing had been decided about fundraising, such a move would be needed.
"Capital raising is necessary for our future undertaking of the businesses... [given] the changing regulatory environment," he said on the sidelines of an annual meeting of Japanese executives yesterday.
The new issue will be offered to local and foreign investors and is expected to increase outstanding shares by about 30 per cent. It will also raise SMFG's "core Tier-1" capital ratio to about seven per cent, from around 5.9 per cent now, the people said. Core Tier-1 capital is a measure of a bank's financial strength.
Most analysts expect that coming regulations will require a core Tier-1 ratio of at least six per cent.
Keep up with the latest business news from the region with the Emirates Business 24|7 daily newsletter. To subscribe to the newsletter, please click here.