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. Last Updated: 07/27/2016

Japanese Banking Giant Poised to Enter Market

bloombergBank of Tokyo Mitsubishi is preparing to open a Russian subsidiary.
Japanese banking giant Bank of Tokyo Mitsubishi is preparing to open a subsidiary in Russia, the bank said on Friday.

The news comes at a time when an increasing number of foreign banks are entering the domestic market and Japanese exports to Russia are booming.

"We have been considering opening a subsidiary in Russia for a quite a long time," a BOTM spokesman said by telephone from Tokyo.

On Friday, Japanese business daily Nihon Keizai Shimbun reported that the bank would launch operations in Russia by spring of next year.

When BOTM completes its merger with Japan's UFJ later this year, the new bank will become the world's largest bank by assets. The bank has operated a representative office in Russia since 1992.

"The market potential was there, and we think it's on the rise," the bank spokesman said. "The main objective would be to support subsidiaries of the Japanese companies in Russia."

More than 100 Japanese subsidiaries and joint ventures are operating in Moscow, according to JETRO, the Japan External Trade Organization.

BOTM declined to provide more details on its Russian subsidiary until it receives a license from the Central Bank. A Central Bank spokesman declined to comment on Friday.

Nihon Keizai reported that BOTM would launch "full banking services." Two other major Japanese banks, Sumitomo Mitsui Banking Corp. and Mizuho Corporate Bank also plan to open offices in the Russian capital, AFX news agency reported on Friday.

BOTM's entry into the market would fall into a larger trend of foreign banks coming to Russia. In April, Banca Intesa, Italy's No. 1 bank by assets, purchased a controlling stake in KMB-Bank. And in May, Sweden's Svenska Handelsbanken upgraded its Russian representative office to a subsidiary.

Foreign banks are prohibited from opening branches in Russia but can open 100 percent-owned subsidiaries. Only one Japanese retail bank is currently operating in Russia. Michinoku Bank, a small lender, has offices in Moscow, Khabarovsk and Yuzhno-Sakhalinsk.

"Japanese banks as well as Japanese manufacturers and various service providers are increasingly interested in the Russian market," said Iwao Ohashi, general director of JETRO's Moscow office. Russia is Japan's fastest-growing export market, he said, growing 80 percent between 2003 and 2004.

Trade turnover is currently $8.5 billion, according to the Russian-Japanese Business Council. While the council ranks Japan as only the eighth-largest foreign investor in Russia, the interest of BOTM signals new interest from Asia's largest economy.

In June, Toyota broke ground on its $140 million plant near St. Petersburg, becoming the first Japanese car manufacturer to build an assembly plant in Russia. Russians are also showing greater interest in Japanese banks, said Alexander Shevelyov, director of the international cooperation department at the Association of Russian Banks in Moscow.

With many U.S. banks increasingly wary of opening correspondent accounts for Russian banks because of money-laundering laws, Shevelyov said, many Russian lenders are looking to Japanese banks.