June 21 (Bloomberg) -- Sumitomo Mitsui Financial Group Inc., Japan's third-largest bank by assets, said it will buy 20 percent of consumer lender Promise Co. for about 200 billion yen ($1.84 billion) to reduce its dependence on corporate loans.

The bank will acquire a 15 percent stake from Promise and some of its shareholders for as much as 150 billion yen, Sumitomo Mitsui President Yoshifumi Nishikawa said at a press briefing in Tokyo. The remaining 5 percent will be bought later.

Japan's biggest banks are turning to individual borrowers to boost profit, 70 percent of which is provided by loans to companies. Promise and rivals such as Aiful Corp. compete in a $96 billion business that approves loans of as little as $10.

``I'd like to see how the two companies will differentiate the business from rivals,'' said Nana Otsuki, an analyst with Standard & Poor's in Tokyo. ``The consumer finance business is a commodity that's hard to differentiate.''

Mitsubishi Tokyo Financial Group Inc., Japan's second-biggest lender, said in March it will raise its stake to 15 percent in Acom Co., Japan's No. 2 consumer lender. In Japan, companies holding 15 percent stakes can include that percentage of profit in their financial accounts.

Shares of Sumitomo Mitsui fell 1.7 percent to 748,000 yen. Promise shares rose 90 yen to 7,450 yen. The companies said on June 10 they were in alliance talks.

``Promise was the best way of securing a top position in Japan's consumer finance industry,'' Nishikawa said, adding that the alliance would be in place by September.

Transaction Details

Sumitomo Mitsui will buy 8.9 million new shares and 4.33 million treasury shares from Promise for 7,120 yen each by July 13, Tokyo-based Sumitomo Mitsui said in a statement. It will purchase 7 million shares from Promise stockholders during the same period for an undisclosed price.

Goldman Sachs Group Inc. advised Sumitomo Mitsui on the acquisition and Nomura Holdings Inc. worked with Promise.

Sumitomo Mitsui and Promise said they aim to boost outstanding loans to about 500 billion yen within three years. Sumitomo Mitsui's main banking unit and Promise will offer loan products with an interest rate of as much as 18 percent through the bank and a new consumer finance company.

Promise will guarantee, promote, manage and collect the loans, while Sumitomo Mitsui will sell the service through its branches, it said.

``We want to respect the independence of Promise,'' said Nishikawa. ``The 20 percent stake represents the strong commitment in each other.''

Other Alliances

The two already have alliances with other companies.

While the tie-up won't change the existing alliance between Sumitomo Mitsui and Sanyo Shinpan Finance Co., according to Nishikawa, Promise may reconsider its alliance with UFJ Holdings Inc., President Hiroki Jinnai said.

``In completing this alliance, we will talk with UFJ,'' said Jinnai. ``There is a possibility that our relationship will change.''

UFJ owns half of Mobit Co., which makes unsecured loans of up to 3 million yen to individuals at interest rates of between 15 and 18 percent. Promise Co., Japan's fourth-largest consumer lender owns 45 percent of the venture and Aplus Co. holds 5 percent.

To contact the reporter on this story: Mariko Iwasaki in Tokyo at at miwasaki@bloomberg.net

Last Updated: June 21, 2004 05:56 EDT