Can the recently approved merger plan have a catalyzing effect to accelerate the realignment of regional banks? The merger should serve as a model case for strengthening regional financing.
The Fair Trade Commission has approved the merger plan between Fukuoka Financial Group, Inc., based in the city of Fukuoka, which has Shinwa Bank in Nagasaki Prefecture under its wing, and Eighteen Bank Ltd., the largest regional bank in Nagasaki Prefecture.
The two banks are scheduled to merge in April next year, two years behind the original timetable.
The FTC's screening had been protracted because the antitrust watchdog had believed there was a risk that the merged bank would strengthen its regional monopoly in Nagasaki Prefecture.
Amid ongoing population decline, the earning capacity of regional banks has been dwindling. Competition has been intensifying amid an increase in the amount of loans provided beyond prefectural boundaries.
It would be unacceptable for regional banks to become unable to provide sufficient services for regional businesses and residents due to the waning of their corporate strength.
Mergers are a leading option for revitalization of regional banks. It is reasonable that the FTC has approved the merger plan, though it seems to have come late.
A factor that made the screening difficult was worry that the merged bank's share in loans to small and medium-sized firms in Nagasaki Prefecture would increase to about 75 percent of the total.
A breakthrough was made when it was agreed to transfer nearly 100 billion yen in loan claims to other financial institutions, thus reducing its lending share to about 65 percent.
But this won't change the merged bank's strong position over rival banks. The merged bank will not be allowed to do such things as unreasonably raising interest rates on loans.
FTC must be realistic
As a reason for its approval of the merger plan, the FTC explained it had "judged comprehensively that competition will be maintained." The watchdog body takes the stand that it does not regard market share alone as a problem, an assertion that is hard to understand.
Screenings, if they take many years, might set back the momentum for realignment of regional banks. The FTC should strive to enhance the transparency and speed of its screenings. It is called on to make a realistic approach in considering regional conditions.
The past realignment of regional banks was dominated by the mergers of those operating in different prefectures.
The merger of two leading banks operating in the same region, like the one approved this time, often brings about positive streamlining effects such as reduction of their branch offices covering the same areas.
Given that the FTC showed understanding of the transfer of loan claims, it is possible that regional banks, which have taken a wait-and-see attitude, will launch moves toward realignment.
The number of regional banks amounts to as many as about 100 across the country, quite different than the figure for megabanks. Regional banks have fallen into a vicious cycle in which their performance deteriorates due to the further contraction of profit margins caused by excessive competition, on top of low interest rates.
If the number of regional banks with healthy financial foundations increases through mergers, it will facilitate fund supply to local firms and thus lead to revitalization of regional economies.
Undoubtedly, realignment is not a decisive measure for reinvigoration of regional banks. It is essential for them to find good borrowers of loans and make efforts to discover promising business fields while some strength remains withing the merged bank after management integration.
(From The Yomiuri Shimbun, Aug. 31, 2018)
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