Published On: Tue, Mar 4th, 2014

Banks Urged to Merge in Japan

A man walks out from a business building in TokyoJapanese regulators are increasing the pressure on regional banks to consolidate, worried that shrinking populations outside the nation’s major cities will leave lenders too weak to stand on their own. After direct prodding from the head of the Financial Services Agency (FSA) for the more than 100 regional banks to slim down through mergers or takeovers, the regulator has set up meetings with regional bank presidents to grill them on their long-term business plans.

The agenda is implicit but clear, bankers and regulators say: show how you plan to survive over the coming decades as local economies wither, or look for tie-ups. The FSA’s push will likely accelerate a process, dictated by demographics, that had been expected to take decades, banking industry insiders say.Top executives at regional banks have shown no public signs of moving toward consolidation. They tend to be local heavyweights, reluctant to share power by merging with other lenders and diluting their status. “Many bank presidents are thinking it’s not going to happen on their watch,” said an executive at one regional bank.”Regional banks are feeling growing pressure from authorities to consider consolidation,” said Natsuko Ishida, a financial sector analyst at Moody’s Japan. “Bank executives who were thinking about consolidation in a timeframe like 10 years are now under pressure for a shorter time span.

FSA Supervisory Bureau chief Kiyoshi Hosomizo told regional bank executives in mid-February, “In many regions, the decrease in population is continuing, and as a result, we can expect that deposits will peak out,” according to minutes of the meeting reviewed by Reuters.At the meeting, attended by a phalanx of senior FSA officials, Hosomizo told bankers that regular hearings in March and April will press them on “how each bank will craft its short-, medium- and long-term strategies.”They will be grilled not only on their current business areas, but also about how the financial sector should be more broadly, including neighboring areas, the minutes show. This is code for regional banks to consolidate, said a former top FSA official.

The oblique presentation reflects the regulator’s “true feelings versus what must be said in public”.Those true feelings are already clear enough, as national loan demand has shrunk 10 percent over the last two decades – with the hinterlands the hardest hit.FSA chief Ryutaro Hatanaka told regional bank heads in January, “We would like you to consider business alliances and mergers as management issues,” according to minutes previously reviewed by Reuters.An FSA spokesman declined comment on the agency’s plan for smaller financial institutions.Change, when it comes, could be dramatic.

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Banks Urged to Merge in Japan