Regional banks are seeing their stocks rise after years of ultra-low interest rates and economic sluggishness. Part of the reason behind the trend may be due to growing speculation that regional banks may integrate with improved earnings and that Prime Minister Yoshihide Suga is believed to be keen on the reorganization of the nation's regional banks.
Even so, there is no telling whether the results would reflect the expectations, as the reorganization of regional banks has made little headway over the years.
When he declared his candidacy at a press conference on Sept. 2 for the ruling Liberal Democratic Party's presidential election to choose Prime Minister Shinzo Abe's succesor, Suga referred to regional banks, saying "When talking about the future, there would be so many regional banks." On the following day, he went so far as to say that "Their reorganization could also be an option." Ever since then, buy orders for regional bank stocks have been widely on the rise from investors.
Small regional banks (ranked second or lower in scale in each prefecture) in particular have seen jumps in their stock prices. Comparing the closing price on Sept. 2, when Suga made the remarks, in addition to the one last Friday, the respective stock prices of Fukushima Bank rocketed up 60%, and the Bank of Toyama surged 35%.
SBI Holdings Inc. has been aggressively investing in regional banks under the banner of a "scheme to unite regional banks into a confederation" and they took an about 17% stake in Fukushima Bank. SBI Holdings President Yoshitaka Kitao also enjoys a close relationship Suga.
SBI has also taken stakes in Shimane Bank and Shizuoka Prefecture-based Shimizu Bank and their stock prices have also risen, reflecting the market expectations of reorganization.
A special act under the Antimonopoly Law will take effect in November. Under the act, should they meet certain conditions, mergers of regional banks will be allowed even if their newly combined lending market share would significantly rise within their local communities. The passing of the special act may also be one of the contributing factors to the rise in regional banks' stock prices.
Yet Shingo Ide, a chief financial engineer at NLI Research Institute, has taken a harsh view, saying: "This rise of stock prices [of regional banks] due to the expectations for their reorganization is only temporary. It would be difficult for their stock prices to rise further unless they are able to clearly show the merits of their business integration."
The business environment for regional banks have become harder than ever. According to data collected by the Financial Services Agency, the net profits at Japan's regional banks, including Saitama Resona Bank, fell to 690.1 billion yen in fiscal 2019 -- a more than 40% drop over the past four years. The agency has urged regional banks to consider reorganizing themselves as an option, but the tally of the more than 100 regional banks has only dropped by four over the past decade.
Reorganizations of regional banks in the past have not been effective in improving their business performance. Bank of Yokohama President Yasuyoshi Oya, speaking as chairman of the Regional Banks Association of Japan at a press conference on Sept. 16 said that reorganization "was a task that required quite a lot of energy." His remarks came as a recalled his bank's business integration with Higashi-Nippon Bank in 2016.
An official at a regional bank said, "There is also laborious work, including the way in which relevant systems and data are drawn up, as well as the comparison and adjustment of employees' wage levels, all of which have been psychological barriers [for integration]."
Regional banks are considered as prestigious business entities in local communities and have a strong spirit of independence. Nearly every regional bank has grown frantic about perceiving how serious Suga is about their own reorganization.
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