Sumitomo Mitsui to Raise Stake in Bank of East Asia

HONG KONG--Japan's Sumitomo Mitsui Banking Corp. plans to almost double its holding in Bank of East Asia Ltd. by buying another $1 billion of shares in the Hong Kong lender.

Sumitomo Mitsui Banking Corp. plans to increase its stake to 17.5% from 9.6%, subject to regulatory approvals, making it one of the biggest shareholders in the bank. The move also marks the latest example of Japan's cash-rich lenders expanding their reach across the region.

One of only two remaining family-owned banks in Hong Kong, Bank of East Asia is among the largest banks not based in mainland China but operating there, with more than 100 branches in the country. But that exposure to China's slowing economy has prompted warnings from the lender of a spike in bad debts there.

Spanish lender CaixaBank SA owns 17.05% of the Hong Kong lender and Guoco Group Ltd., a conglomerate controlled by Malaysian tycoon Quek Leng Chan, has a 15% stake.

Banking in Hong Kong is dominated by the likes of HSBC Holdings PLC and Standard Chartered PLC, but competition from other lenders is pressuring profits at smaller banks and triggering consolidation.

Hong Kong's banks face other risks, too. The yuan's surprising depreciation this year threw a spotlight onto a sharp increase in lending into China by Hong Kong banks, especially to clients trying to profit from the difference in interest rates between Hong Kong and the mainland, where rates are higher.

Closer to home, Hong Kong lenders are also vulnerable to a correction in the city's home prices, which have cooled in recent quarters as the government applied tools, such as a tax on foreign buyers, to ease demand. Before the launch of that tax in late 2012, prices had risen 120% since 2008.

Write to Enda Curran at [e-mail] and Atsuko Fukase at [e-mail]

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