With too few borrowers, Japan's regional banks are urged to merge

Mon Mar 3, 2014 4:06pm EST
 
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By Taiga Uranaka and Noriyuki Hirata

TOKYO (Reuters) - Japanese 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."

DEPOSITS PEAKING?

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."   Continued...

 
A man walks out from a business building in Tokyo January 24, 2013. REUTERS/Toru Hanai