Due to sluggishness in local economies, caused by population decline and other factors, the business conditions of regional banks are severe. Realignment of regional banks will be an effective option to enable them to fulfill their primary responsibility of smoothly supplying funds and vitalizing local economies.
Prime Minister Yoshihide Suga has instructed Finance Minister Taro Aso, who is also the state minister for financial services, to improve the environment for the reorganization of regional banks. Even before assuming the post of prime minister, Suga had called for the reorganization of regional banks, saying that otherwise there would be too many regional banks in the future.
According to the Financial Services Agency, out of about 100 regional banks, 46 reported a loss last fiscal year on customer services such as corporate and housing loans, as profit margins on loans diminished due to ultralow interest rates. Moreover, 39 of them have been in the red for more than two years.
Many regions are experiencing serious population decline, and some observers say that regional banks' business will not be sustainable if the current situation continues. The prime minister's view of the issue is reasonable.
The industries that support local economies, such as the tourism and restaurant businesses, have been seriously hit by the spread of the novel coronavirus. Regional banks must help such business operators with financing and strive to stabilize local economies as much as possible.
To this end, it is essential to strengthen the business foundations of regional banks themselves.
Mergers of regional banks will enable major improvements in business efficiency by consolidating systems and abolishing or integrating branches. The expansion of business scale can also make it easier to work on fintech, a combination of finance and information technology.
While major banks have been consolidated into three megabanks, the number of regional banks had decreased by only four in the past 10 years through September this year.
In particular, the reorganization of first-tier regional banks, the core banks in local economies, has been delayed. But Eighteenth Bank and Shinwa Bank, both based in Nagasaki Prefecture, merged to form Juhachi-Shinwa Bank this month. It is hoped that the merger will serve as a precedent that could lead to the revitalization of local economies.
A special measures law in conjunction with the Antimonopoly Law will come into force in November. The special measures law will allow banks to merge, among other things, even if their market share in the same prefecture increases after the merger.
Regional banks should explore the possibility of mergers and consolidation in light of their regional circumstances. The government also needs to devise more measures to support these efforts. After the realignment, it will be necessary for the authorities to check whether there are any adverse effects, such as demanding unreasonably high interest rates of borrowers.
If regional banks promote abolishing or integrating their branches to cut costs, local residents could find it inconvenient. To prevent this from happening, it would be effective to strengthen cooperation with Japan Post Co., which has 24,000 post offices nationwide, and Japan Post Bank.
In doing so, it will be possible to cooperate in branch management and system development, and expand mutual use of automated teller machines. It is also worth considering jointly developing new businesses.
-- The original Japanese article appeared in The Yomiuri Shimbun on Oct. 9, 2020.
Read more from The Japan News at https://japannews.yomiuri.co.jp/
