Sumitomo Mitsui Financial Group Inc. (8316.TO) plans to ramp up its operations in China, India and Southeast Asia to become a global player better equipped to compete with Western financial powerhouses, top executives at the bank said.

Options being considered include acquiring loan portfolios from Western financial institutions, as well as tie-ups with local players, said SMFG President Koichi Miyata in a recent interview.

With the Japanese market looking saturated amid a shrinking population, the country's top three banks are vying to gain a bigger slice of Asia's fast-growing economies. Even though the banks escaped the global financial crisis relatively unscathed compared with Western rivals, they are lagging behind other global lenders to fully tap into demand in emerging markets. Other financial institutions such as brokerages and nonlife insurance firms are also hiring staff in the region or investing in local firms.

SMFG, Japan's second-largest bank by market capitalization after Mitsubishi UFJ Financial Group Inc., wants to increase the volume of its overseas lending to 15 trillion yen ($187 billion) from the current JPY9 trillion in the next three years, said Miyata, 57 years old, who became SMFG's president in April. The bank also hopes to boost profit from its international business to 30% of the total over the same time frame, from 23% last year, he said.

"I think growing organically is our basic approach, but if that limits our growth," the bank will consider mergers and acquisitions or capital tie-ups, Miyata said.

Japan's largest bank, Mitsubishi UFJ Financial Group (8306.TO), last year bought Royal Bank of Scotland Group PLC's (RBS, RBS.LN) project-finance loan portfolios, totaling 3.3 billion pounds ($5.38 billion), mainly for infrastructure projects in Europe, Africa and the Middle East.

Mizuho Financial Group Inc. (8411.TO, MFG), Japan's third-largest bank by market capitalization, is also beefing up business in Asia by hiring staff in the region and forming tie-ups with local players in India, Vietnam, Malaysia and China.

Miyata, who worked in SMFG's trading operations for more than a decade and oversaw the company's markets division until last year, said asset purchases from Western rivals is one possible option.

"Our idea is that [such asset purchases] will likely cover Asia, closer to Japan," he said.

A tie-up with a local asset-management firm is also an option, he said, noting that markets with burgeoning middle classes such as China and Thailand are of interest.

In a separate interview, Takeshi Kunibe, 57 years old, president and chief executive of core SMFG banking unit Sumitomo Mitsui Banking Corp., said the bank aims to allocate an additional 400 employees overseas by hiring local staff and transferring workers from Tokyo in the current fiscal year.

Kunibe said there are no specific deals currently on the table, but any new investments could be bigger than previous deals. SMFG and its unit SMBC have started forming alliances with financial institutions in Asia, including in emerging markets, each valued at less than JPY50 billion.

Last year SMBC bought 4.5% of India's Kotak Mahindra Bank (500247.BY) for about JPY26 billion, and it strengthened its ties with Malaysia's RHB Capital Bhd. (1066.KU) in December. The group also acquired a roughly 2% stake in South Korea's Kookmin Bank, a commercial banking unit of KB Financial Group Inc. (KB, 105560.SE), in 2008.

As its focus shifts to emerging markets, the Japanese banking giant also faces a headache at home with utility Tokyo Electric Power Co. (9501.TO), known as Tepco.

SMBC provided about JPY600 billion in emergency loans to Tepco in March, one of a group of banks to provide funding to the embattled utility as it struggled to cope with the impact of the crisis at the earthquake-damaged Fukushima Daiichi nuclear-power plant that it operates.

With fundraising in the market nearly impossible for Tepco after a series of credit downgrades, the company may need further support from the government and its creditors as it prepares for huge compensation payments to those affected by the disaster.

SMBC's Kunibe said his bank isn't worried about Tepco's financing for now, adding that he doesn't think additional loans are necessary and that the bank hasn't received any additional loan requests.

   -By Atsuko Fukase, Dow Jones Newswires; 
   atsuko.fukase@dowjones.com