Regional banks face a tough business environment as the nation's population declines and interest rates on loans have fallen. Mergers with other banks are a leading option for survival in this industry. It will become important to consider how reorganizing these banks will contribute to regional economies.
The planned merger between Fukuoka-based Fukuoka Financial Group Inc. and Nagasaki-based Eighteenth Bank has become a litmus test for the realignment of regional banks.
Shinwa Bank, which is based in Sasebo, Nagasaki Prefecture, is under Fukuoka Financial's umbrella and is the second-largest bank in the prefecture. If Shinwa were to merge with Eighteenth Bank, the largest bank in Nagasaki Prefecture, they would control about 70 percent of the market share for corporate loans in the prefecture.
The Fair Trade Commission put the brakes on the planned merger because it "was not appropriate for consumers to have their range of choices limited."
The commission believes the merged bank's position would be too powerful, which could bring drawbacks including higher loan interest rates to customers.
Shinwa and Eighteenth have sounded out some clients about their willingness to transfer some loans to other financial institutions. If these loans were transferred, the combined bank's market share would drop and it would be easier to maintain healthy competition among financial institutions in the region. All sides should keep trying to resolve this issue.
Fukuoka Financial and Eighteenth reached a basic agreement on the merger plan in February 2016. There is an undeniable sense that a lot of time has been wasted while the commission and the Financial Services Agency, which has encouraged reorganization of the financial industry, have been staring daggers at each other.
One plan could be for both sides to work together and decide on the merger's merits from a wide array of perspectives that take the region's conditions into account.
Customers also must benefit
Regional banks are expected to function as part of the local social infrastructure. If these banks do not have robust management vitality, there is little hope they could even maintain their network of branches.
There will be no winners if regional banks all fail together. One way of thinking is that the planned merger should be allowed and then carefully monitored to ensure potential adverse impacts of such a monopoly do not arise.
A panel of experts set up by the agency presented a proposal that expounded on the necessity of management integration among regional banks. The panel pointed out that unless mergers are actively nudged along, negative impacts on regional economies will be unavoidable.
More than half of the nation's 106 regional banks reported losses in their main business operations, such as financing, in their closing of accounts for fiscal 2016. Their earnings environment is forecast to deteriorate further in the years ahead. The direction of the panel's proposal is understandable.
It is crucial that management integration does not end up merely extending the life of these banks, but actually benefits the customers. Needless to say, regional banks must work hard by themselves to ensure this happens.
There are many challenges banks should address, including improving their ability to pinpoint companies with promising futures and reviewing their approach to lending that relies on collateral, and making commission revenue, earned by meticulously dealing with individuals' consultations about asset management, a pillar of their business operations.
The number of regional financial institutions forced to realign with others will likely increase due to the decline in regional economies. Successful examples of management stability created by mergers will hopefully emerge one after another.
(From The Yomiuri Shimbun, April 26, 2018)
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