The government and the Bank of Japan have come up with a series of new measures to help regional banks reorganize. Each regional bank must begin full-fledged discussions on how to strengthen its management foundation based on the measures.
A special measures law in conjunction with the Antimonopoly Law has come into effect to make it easier for regional banks in the same region to integrate their operations. So far, it has been difficult to reorganize regional banks if their market share in the region would reach a high percentage after a merger, but the Antimonopoly Law would not be applied to such cases under certain conditions.
In addition, the Financial Services Agency intends to establish a new system as early as next summer to provide subsidies to regional banks and other financial institutions that will integrate their operations. An initial cost of about 10 billion yen is said to be required to integrate computer systems in a reorganization. About one-third of the cost is planned to be subsidized under the new system.
The central bank has decided to pay additional interest of 0.1% annually on current accounts of regional banks and other financial institutions held at the central bank after their integration of operations or cost reductions. This can be said to be a substantial provision of funds to them.
While major banks have been consolidated mainly into three megabanks, there are still 101 regional banks. It is important for the government and the central bank to support their reorganization.
For the first-half period ending in September 2020, about 60% of 78 listed regional banks reported either a decline or a loss in their net income.
In addition to the deteriorating business environment caused by the declining population and shrinking profit margins due to ultralow interest rates, the spread of the novel coronavirus has led to an increase in reserves for failure of their borrowers and other situations.
If the impact of the coronavirus is prolonged, the burden on reserves could increase. There is a fear that such a situation could deal a further blow to local economies, mainly through banks' reluctance to extend loans.
Realignment of regional banks such as by mergers would be an effective way to break the deadlock. The larger the scale of a business becomes, the more efficient its operations can be, making it easier to provide comprehensive financial services.
Local companies are asking regional banks not only for funds but also for help in finding customers and sales destinations, introducing management personnel and promoting digitization. There are also strong calls on regional banks for greater involvement in these companies' management through capital investment, and for cooperation in revitalizing their businesses and finding successors.
Regional banks are required to respond to such needs and contribute to the vitalization of local communities.
Promotion of the reorganization of regional banks is a key policy of Prime Minister Yoshihide Suga, but transparency is also essential. It is extremely unusual to provide subsidies that do not require repayment, or pay additional interest to financial institutions. It is important for the government to thoroughly explain its aims and effects to the public.
It is necessary to avoid causing inconvenience to local users in the realignment of regional banks. If regional banks promote the elimination and consolidation of their branches, it is advisable for them to consider expanding cooperation with Japan Post Co., which has a network of post offices.
-- The original Japanese article appeared in The Yomiuri Shimbun on Nov. 27, 2020.
Read more from The Japan News at https://japannews.yomiuri.co.jp/
