Sumitomo Mitsui Financial Group (SMFG) has outlined plans to
become Japan’s biggest credit card issuer by establishing a new
holding company for its four card and consumer finance subsidiaries
and merging three of them, making SMFG one of largest players in
the country’s consumer credit sector.

SMFG said it will merge OMC Card, Central Finance and Quoq in
April 2009. SMFG currently holds around 33 percent of OMC Card, 23
percent of Central Finance and 31 percent of Quoq. Sumitomo Mitsui
Card, part of the SMFG group, will also be placed under the same
holding company and eventually share the same systems and
processing operations, but will retain its own brand.

The newly merged company and Sumitomo Mitsui Card will have an
annual credit card transaction volume of ¥9.5 trillion ($91
billion), surpassing the ¥9.1 trillion for Mitsubishi UFJ Financial
Group, which includes Mitsubishi UFJ Nicos and Jaccs. SMFG plans to
hold 66 percent of Sumitomo Mitsui Card and between 40 and 50
percent of the newly merged company.

SMFG, Japan’s third-largest bank, has made determined efforts to
increase its market share of Japan’s consumer finance industry,
even as the sector bears the brunt of recently introduced
legislation that has lowered caps on interest rates, causing other
consumer finance players to exit the sector.

Positive effects on OMC

According to global credit ratings agency Standard & Poor’s
(S&P), SMFG’s plans could have a positive impact on the credit
quality of OMC Card, given that stronger financial support from
SMFG is expected. Also, streamlining effects are expected from the
synergies derived from the merger with the other group companies as
well as system integration, S&P said. According to S&P, it
is too early to incorporate the potential impact of the integration
into the ratings on OMC Card as some factors may negatively affect
the ratings on OMC Card post-merger, including lower capitalisation
and profitability of Central Finance and Quoq, compared with that
of OMC Card.

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