MUFG repackages real estate loans as property credit soars

TOKYO: Mitsubishi UFJ Financial Group Inc (MUFG) is securitising loans to real estate investment trusts (REITs) and selling the products to margin-starved smaller banks as lending to Japan’s property sector hits record highs.

In May, Tokyo-based MUFG sold its first 50 billion yen (US$440mil) securitisation of claims from its one trillion yen J-REIT loan portfolio, said Shinichi Umeki, a deputy general manager of the division within the bank’s securities arm that managed the sale.

“The take-up has been strong – we’ve almost sold out,” Umeki said in an interview. Japan’s biggest bank planned to sell about 100 billion yen a year in 50 billion-yen lots to regional lenders and credit unions, he said, without commenting on the yield or other conditions.

Investing in the products enables smaller banks to get a slice of REIT loans that they are unable to dole out themselves, while MUFG can earn fees and free up capital.

Japanese bank lending to the real estate industry climbed to a record 12 trillion yen last year, fuelled by unprecedented monetary easing and a property price recovery.

The Bank of Japan has said that banks with large exposure to the sector should improve how they manage risks.

“Securitisation enables a bank to transfer the risk from its exposure to real estate,” said Yukio Egawa, chief strategist at Shinsei Securities Co. “While such transactions enable the seller to reduce its risk, at the same time it increases the regional banks’ exposure.”

Yuichi Yoshizawa, chief manager in MUFG’s structured finance division, said the bank is increasing loans to the J-REIT industry by about 10% a year and the securitisation business would give room for further growth. “We want to expand our investor base while the REIT market environment is strong,” he said.

J-REITs mostly invest in commercial, office and retail real estate. The Tokyo Stock Exchange REIT Index, while down 9% this year, has recovered to a level of about 1,700 after falling below 1,000 during the global financial crisis.

Tokyo office prices jumped almost 50% in the four years since Prime Minister Shinzo Abe came into power in 2012.

Profit at Japan’s regional banks dropped 15% last year, Financial Services Agency data show, as loan margins shrank after the introduction of the central bank’s negative interest-rate policy.

Near-zero returns on government bond investments have prompted local lenders to seek products that offer better returns yet still carry relatively low risk.

Securitisation is the process of creating a financial instrument by repackaging other financial assets and marketing them to investors.

Tokyo-based Rating and Investment Information Inc gave an AAA evaluation to MUFG’s 41.5 billion-yen series A securitisation, an AA- to its 2.5 billion-yen series B product, and an A+ to its 6 billion-yen series C product.