RPT-ANALYSIS-Local lenders face threat from Japan post bank

(Repeats item first sent on Dec. 16)

By David Dolan

TOKYO, Dec 16 (Reuters) - Quaintly named small banks such as Tomato Bank Ltd (8542.T) and 77 Bank Ltd (8341.T) have for years held sway over mortgages and small-business lending in Japan's hinterlands, areas where Mitsubishi UFJ Financial Group Inc (8306.T) and other "megabanks" have little presence.

But the privatisation of Japan Post [JP.UL], the world's largest savings institution, is set to trigger a consolidation wave that threatens the rural dominance of local lenders such as Akita Bank Ltd (8343.T) and Kita Nippon Bank Ltd (8551.T).

They are likeliest to be squeezed if the new Japan Post Bank Co Ltd, also known as Yucho Bank, begins to act more like a standard bank and moves beyond simple deposit-taking.

"The impact will clearly be on the regional banks because that's where the post office has a network, where they have a lot of deposits," said Graeme Knowd, bank analyst at CLSA Asia-Pacific Markets in Tokyo.

"Where it will start to make a real difference to the regional banks will be if the post office starts to get its act together on the lending side," he added.

Yucho Bank began its privatisation process in October and is expected to complete it by 2017, with a stock listing seen as early as 2010.

The post bank has yet to announce official plans to offer mortgages or corporate lending, but analysts expect to see some form of both as Yucho Bank moves towards a listing.

By stressing roots in the local community, regional lenders have so far defended their loan businesses from the megabanks. But with a network of 24,000 branches, the post office has a presence in even the most far-flung village.

"The regional banks' advantage over megabanks is that they cater to the local society. I do believe the post office has a much deeper (local) root," said Kristine Li, a bank analyst at KBC Securities in Tokyo.

GIGABANK

In terms of size, Yucho dwarfs the competition.

"Compared to the megabanks, in terms of deposits, branches and employees, Japan Post Bank is a gigabank," said credit analyst Akiko Kudo of Fitch Ratings.

The bank's deposits add up to 185 trillion yen ($1.7 trillion), more than three-quarters of the combined deposits of MUFG, Mizuho Financial Group Inc (8411.T) and Sumitomo Mitsui Financial Group Inc (8316.T).

While it isn't clear what the final version of the bank will look like, one thing is certain: it will put the squeeze on the smallest lenders.

"Consolidation is likely to take place among the smaller banks that will have to boost their competitiveness in order to survive," said Akira Mizobuchi, an analyst at Nomura Securities who specialises in regional lenders.

PICK YOUR TARGETS

In particular, Mizobuchi is looking at parts of Japan where more than two regional lenders compete for business in a slowing local economy.

For instance, annual industrial output in the rural northern prefectures of Akita, Aomori and Iwate totalled about 12.5 trillion yen, slightly above urban Hiroshima's 11 trillion yen, according to latest Nomura data.

But where Hiroshima has just two local lenders, the three northern prefectures have seven banks between them: Akita, Kita Nippon, Aomori Bank (8342.T), Michinoku Bank Ltd (8350.T), Bank of Iwate (8345.T), Tohoku Bank Ltd (8349.T) and unlisted Hokuto Bank.

"I think we are going to see more and more banks coming together and forming a group in those prefectures where there are three different lenders," Mizobuchi said.

In Gifu prefecture, Gifu Bank Ltd (8528.NG), which still has money to repay from a public bailout of the sector, could potentially team up with rival Ogaki Kyoritsu Bank Ltd (8361.T), to compete with leader Juroku Bank Ltd (8356.T), Mizobuchi said.

($1=111.95 Yen)

(Editing by Ian Geoghegan)

((david.dolan@reuters.com; +81 3-3432-9911; Reuters Messaging: david.dolan.reuters.com@reuters.net)) Keywords: JAPAN POST/BANKS

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