Sanwa Bank Ltd. plans to deal with the bulk of its problem loans in Japan and resume growth in the United States in 1996, according to one of the bank's senior U.S.-based executives.
"Sanwa Bank is not going to shrink or become less active because of problems in Japan," said Isao Matsuura, managing director and general manager for Sanwa Bank Ltd. in the United States.
In an interview Wednesday in his New York office, Mr. Matsuura said that "within a year or two, Sanwa will be finished with its problem loans. We will certainly be expanding in the future."
Like other major Japanese banks, Sanwa's growth here slowed after the bank found itself saddled with a large number of problem loans after the early 1990s' downturns in the United States and Japan.
However, Sanwa, Japan's fifth-largest bank with some $495 billion in assets, is fortunate because it has one of the lowest levels of bad loans.
According to data compiled by Goldman, Sachs & Co., Sanwa had some $8 billion in nonaccruing loans and loans to bankrupt companies, as of Sept. 30. That equaled about 2.4% of the bank's total loans, compared with nearly $13 billion in such loans, or 3.8% of all loans, at Dai-Ichi Kangyo Bank Ltd.
Sumitomo Bank Ltd. had $12 billion in nonperforming loans, or 3.5% of its total. Fuji Bank Ltd. also had $12 billion in problem loans, or 3.8% of total loans, while Sakura Bank Ltd. had $14.5 billion, or 4% of total loans.
Sanwa is currently rated AA3 by Moody's Investors Service Inc., one of the highest ratings for big Japanese banks.
Shunsaku Sato, with Moody's in New York, noted that Sanwa's earnings remain strong. "They would be in a better position than other banks to expand worldwide," he said.
But Mr. Sato noted that problems at Sanwa and other Japanese banks have forced them to keep operations in the United States and Europe at stable levels and even to cut back over the last few years.
Any future expansion could be limited if further problem loans emerge or if better opportunities appear elsewhere, such as in the fast-growing economies of Southeast Asia.
Unlike the 1980s, when Sanwa and other big Japanese banks piled into the United States in an effort to grab market share, Sanwa now looks for higher-yielding, rather than bigger, assets here.
Mr. Matsuura said part of this shift in strategy has already been completed at $8 billion-asset Sanwa Bank of California, where he was chairman and chief executive before being transferred to the U.S. corporate wholesale operations last summer.
Sanwa's California retail banking unit has changed its ratio of commercial to consumer loans from 75/25 to 60/40 since 1992. This move, Mr. Matsuura said, strengthened Sanwa California's loan portfolio by lowering risks and improving profits on lending.
On the wholesale corporate side, Sanwa plans to develop its capital- markets-related activities and step up its derivatives operations at Sanwa Financial Products in Chicago.
The bank will also expand its corporate wholesale operations beyond the Fortune 500 companies it has traditionally dealt with to serving specialized sectors, such as oil and gas. Sanwa also plans to take on lower-credit-quality corporations that bring an opportunity for higher profits.
Mr. Matsuura acknowledged that this would increase the bank's risk profile in the United States. "We think we can do that business, but we'll need good research and analysis," he admitted.
With pressure on margins increasing since U.S. banks improved their capital ratios, Sanwa has little alternative. "Spreads are getting narrower and competition is getting tougher," he said.
The United States accounted for some 11% of Sanwa's total net earnings of $442 million for the financial year ended March 31, 1994. Mr. Matsuura says the bank's operations here can, and will, do even better.
