Fitch: Deal will strengthen Sumitomo Mitsui

Fitch Ratings said that Sumitomo Mitsui Financial Group's acquisition of Royal Bank of Scotland's aircraft leasing business will help to strengthen the Japanese bank's modest profitability by making better use of its stable and cheap funding base.

Sumitomo Mitsui, like other Japanese mega banks, is awash with funding because of an ample supply of retail deposits, Fitch said.

But the sector faces weak loan demand in its domestic market, the agency said, along with an already low net interest margin, which is weighing on net interest revenue.

This strong deposit base means Sumitomo Mitsui can meet the funding needs of aircraft leasing more easily than Royal Bank of Scotland, which is selling non-core assets as part of a strategy of deleveraging and cutting its reliance on wholesale funding, Fitch said.

The agency said it expects aircraft-leasing companies to play a larger role in financing new aircraft in the coming years as commercial banks and export credit agencies recede in importance.

Aircraft delivery growth is likely to remain strong over the next few years as global passenger traffic and cargo volumes expand, the agency added.

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