About 60% of regional banks in Japan posted declines in net profit or losses in their midterm settlements, according to a Yomiuri Shimbun tally.
On Friday, 77 of the 78 regional banks listed on the Tokyo Stock Exchange and other bourses released interim results for the half-year period ending in September.
In addition to lower interest rates, a downturn in corporate earnings due to the novel coronavirus pandemic is hurting regional banks.
The Yomiuri Shimbun collected the interim results of 77 regional banks, excluding Jimoto Holdings, Inc. in Miyagi Prefecture, which is scheduled to announce its results on Friday.
Profits fell for 47 companies, including Concordia Financial Group, Ltd., which owns Bank of Yokohama and other firms, while Kagawa Prefecture-based Hyakujushi Bank and Fukushima-Bank posted losses.
Behind this is the Bank of Japan's bold monetary easing measures, which have kept interest rates low and as a result have also reduced profit margins for financial institutions.
In addition, credit-related expenses generated by such factors as allocating reserves for loan losses, are also a burden to many regional banks. Banks have been setting aside reserves in case their lenders fail, and the more companies with worsening performances, the higher the reserves will be.
Many companies in the food and drink, lodging, tourism and transportation sectors have seen their sales fall mainly because of people exercising self-restraint in going out following the coronavirus outbreak.
About half the regional banks saw their expenses increase from the same period last year. Bank of The Ryukyus in Okinawa Prefecture, where tourism is the main industry, posted expenses of 1.3 billion yen, about 13 times higher than the figure posted in the same period last year, mainly due to an increase in reserves for loan losses.
The government's system to extend loans with effectively zero interest without collateral among other measures have so far helped prevent a sharp increase in the number of corporate bankruptcies.
Some regional banks, whose expenses were less than initially expected, have revised upward their net profits for the year ending March 2021.
However, the number of coronavirus cases is increasing. If domestic consumption is slow to recover, lenders' businesses could deteriorate, and regional banks' profits could fall further.
"There is a good chance that the impact of the coronavirus will spread, and the economy will stagnate," said Concordia Financial Group President Yasuyoshi Oya.
Prime Minister Yoshihide Suga has indicated that "restructuring is one option" to boost the management strength of regional banks. The government and the central bank plan to establish a system to promote realignments.
-- Mixed reactions
There have been various responses to the move among regional banks.
"We consider restructuring with like-minded banks a positive thing," said Takeshi Yoshimura, chairman of Yamaguchi Financial Group Inc. "We are grateful that policies to support restructuring have emerged."
However, there are still many regional banks that have a negative view of realignments. Regional banks are proud of their statuses as prestigious local firms and many are highly committed to their independence.
"Management decisions can be made more quickly by a single company," Miyazaki Bank President Koji Sugita said. "Employees' pride will increase by retaining the name Miyazaki Bank."
Since Suga took office in September, there have been gradual moves among regional banks toward loose alliances under which they maintain management independence.
Shizuoka Bank and Yamanashi Chuo Bank have announced a plan to form a business alliance, while Gunma Bank has decided to join the Tsubasa Alliance, a collaborative framework of regional banks for systems and operations sharing.
As Suga has said there will be too many regional banks in the future, it is believed that some regional banks are trying to fend off government pressure toward realignment.
It remains to be seen whether the restructuring plan will proceed as smoothly as the government and the Bank of Japan envision.
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