Fukui Bank is in the final stage of negotiations to make Fukuho Bank a subsidiary, according to sources. The two banks, both headquartered in Fukui City, aim to reach a basic agreement in January.
The strategy of the two banks is to strengthen their management bases amid the ongoing population decline and low interest rates. If realized, it would be the first case of reorganization of regional banks since the start of Prime Minister Yoshihide Suga's administration. Suga has made strengthening regional financial functions through such reorganization one of his key policies.
Fukui Bank is considering acquiring a majority stake in Fukuho Bank as a viable option. Fukuho is expected to continue to operate under the same name even after becoming a subsidiary, according to sources.
The two banks formed a comprehensive alliance called F Project in March, and have introduced joint branches and shared some of their systems. They decided to further strengthen their ties as the business environment has become more difficult amid the ongoing novel coronavirus crisis.
The motivation behind their deepening ties is that local financial institutions are having difficulty making profits due to the aging population and low interest rates. They are trying to expand their customer base and streamline operations through the reorganization.
In Fukui Prefecture where the two banks are based, financial institutions from other prefectures, such as Hokuriku Bank based in Toyama Prefecture and Hokkoku Bank based in Ishikawa Prefecture, are also competing to win customers.
Fukui and Fukuho are believed to be assessing that by cooperating the two banks can expand their customer bases because they serve different customer segments. Fukui deals with enterprises of various sizes, including large companies, while Fukuho's main customers are small firms and individuals.
The business environment for regional banks worsened further after the Bank of Japan introduced negative interest rates in 2016.
According to the Financial Services Agency, regional banks' net profits for the fiscal year ended March 2020 totaled 690.1 billion yen, down more than 40% from the fiscal year ended March 2016.
Even before taking office as prime minister, Suga had shown strong interest in strengthening the management of regional banks. "The number of regional banks will be too many in the future [if they remain untouched], " Suga said at a press conference to announce his candidacy for the ruling Liberal Democratic Party presidency, putting forth his opinion that regional banks should be reorganized.
Taking into account the prime minister's opinion, the government has been hastening the creation of a system to encourage regional banks to reorganize.
In November, a special measures law in conjunction with the Antimonopoly Law became effective that allows regional banks to reorganize in the same area even if their market share increases. In fiscal 2021, the government plans to establish a system to subsidize part of the initial costs of integrating regional banks' operations.
The BOJ has joined hands with the government to help reorganize regional banks. It introduced an unusual system in which interest rates on current accounts held by regional banks, which have decided to reorganize, are increased by 0.1% per year.
As the business environment for regional banks has become increasingly severe, attention is being paid to whether such efforts by the government and the central bank will lead to the reorganization of regional banks.
Read more from The Japan News at https://japannews.yomiuri.co.jp/
