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Megabanks Prodded to Offshore Wind Loans due to Japan’s Negative Rates

Megabanks Prodded to Offshore Wind Loans due to Japan’s Negative Rates
As negative interest rates at home prompt Japan’s biggest banks to search for stronger yields abroad, two of Japan’s biggest banks are redoubling their efforts to lend to the renewable energy industry.
According to data compiled by Bloomberg New Energy Finance for its conference in Shanghai, in writing project finance loans to clean-energy developers during the first 10 months of the year, Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. have pushed past European competitors such as Banco Santander SA.
Steady yields from offshore-wind projects in the North Sea, backed by government subsidies and Europe’s quest to reduce greenhouse gas pollution, is what the institutions have been enticed by.
In the domestic market the banks are finding it tougher to make money on loans and those projects have helped make up for a slowdown in the home. According to the Bank of Japan, the lowest since at least 1993 was noted as Interest rates at Japan’s domestic banks fell to an average 0.703 percent in August. Meanwhile, due to the growing difficulty in finding suitable locations for large-scale projects and amid cuts in the tariffs that solar power producers receive, Japan’s solar boom has lost pace.
“Lending for overseas projects will continue so long as there’s no weakening of policies” to support clean energy, said Megumu Murakami, who studies climate change finance for the Japan Research Institute, a unit of Sumitomo Mitsui.
She said that with many governments in developed countries aiming to reduce greenhouse gas emissions by 80 percent by 2050, “the banks have a strong motivation to strengthen lending in renewables”.
According to BNEF, which hosts the “Future of Energy” summit in Shanghai, while Banco Santander of Spain, last year’s top provider, has been pushed to third position as lead arranger of clean energy asset financing so far this year by Sumitomo Mitsui at $1.52 billion, MUFG, Japan’s largest lender, is in the top position in this aspect this year with $1.88 billion.
“We have long been leading the renewable energy market especially in Europe and North America. In Japan, we take pride in our renewable financing which began about 15 years ago, even before the feed-in tariffs started. That allows us to attract developers and there is demand for financing,” Yoko Yanagida, head of the bank’s power and infrastructure department, said in an interview.
Santander officials declined to comment.
After some central banks in Europe started experimenting with negative rates in 2014, the Bank of Japan slashed its benchmark policy rate below zero earlier this year. By discouraging saving, the bank wants to deliver a jolt to the economy. Search more widely for assets that pay a yield has been prompted by this.
According to BNEF, financing renewable projects in Europe and the U.S. was traditionally the mainstay for MUFG and its Japanese megabank peers Sumitomo Mitsui and Mizuho Financial Group Inc.
“We have been a pioneer in providing project finance for renewables and for other environmentally-conscious infrastructure projects. We will continue working on projects where we can apply our expertise,” Masako Shiono, a Mizuho spokeswoman, said.
Ali Izadi-Najafabadi, a Tokyo-based analyst with BNEF, said that those markets have been made appealing by relatively higher returns offered by renewable projects benefiting from incentive programs called feed-in tariffs or similar guaranteed power purchase agreements and low returns in Japan.
He said that after the Bank of Japan’s adoption of its negative-rate policy earlier this year, “the megabanks have naturally become ever more hungry for yield globally”. “This has resulted in MUFG, Sumitomo Mitsui and Mizuho all being among the top 10 lead arrangers for asset financing of renewables projects in 2016 year-to-date,” he added.

Christopher J. Mitchell

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