OREANDA-NEWS. Fitch Ratings says that the recent announcement by Sumitomo Mitsui Financial Group, Inc. (SMFG, A/Stable) that its 60%-owned subsidiary Sumitomo Mitsui Finance and Leasing Company, Limited (SMFL) had agreed, subject to regulatory approval, to fully acquire General Electric Group's (GE) leasing operation in Japan will have no rating impact on SMFG and its subsidiary banks. Fitch views the acquisition as small, and it should complement SMFG's core domestic businesses, which have a leading position in the domestic leasing sector.

On 15 December 2015, SMFG announced that SMFL plans to acquire a 100% equity interest in GE's Japanese leasing business. The latter covers equipment/asset leasing, small-ticket leasing and automotive leasing, and it has earnings assets of about JPY510bn (11% of SMFL's total assets and just 0.3% of SMFG's total assets at end-March 2015). The purchase price will be about JPY575bn and the deal is likely to close by April 2016. No details about how the acquisition will be financed within the SMFG group are available.

SMFG intends to actively and selectively invest in growth and profitable business areas in Japan and overseas. This is SMFG's second purchase of assets from GE; the first was a purchase of a USD2.2bn European loan portfolio in September 2015. The leasing businesses of SMFL and GE have limited product and client overlaps. The acquisitions increase SMFG's overall risk profile, but improved efficiency would enhance internal capital generation modestly. The leasing business segment represents 8% of SMFG's consolidated net business profit for the fiscal year first half ended 30 September 2015.

Fitch in November 2015 upgraded SMFG's Long-Term Issuer Default Ratings to 'A' from 'A-', reflecting the upgrade of the banking group's Viability Rating (VR) to 'a' from 'a-'. The upgrades were driven by the efforts SMFG has taken to strengthen its risk buffers (especially capital) in the past few years. The ratings take into account the group's strong domestic franchise and ample liquidity, as well as healthy capital position and higher profitability relative to other major banks in Japan. However, the risk of negative ratings action will increase if the agency views capital as no longer being commensurate with its risk appetite. The ratings are unlikely to face positive action since they are currently at the same level as that of the Japan sovereign.