(Adds quotes, background)
TOKYO, July 31 Japan's new top financial
regulator is keeping the pressure on regional banks to
consolidate, urging them to consider tie-ups and mergers to
improve their profits and capital positions, said people
involved in the process.
Kiyoshi Hosomizo, appointed commission of the Financial
Services Agency early this month, told an off-the-record meeting
of regional bank officials that action was needed, according to
people who attended the meeting.
"To strengthen profitability and make capital policies, one
of the various choices for swift action would naturally be
tie-ups or mergers," Hosomizo was quoted as saying.
"I would like you to show leadership and proactively come to
grips with these various issues. This means taking action where
An FSA representative said the agency was not immediately
able to comment.
Hosomizo's predecessor at the FSA, Ryutaro Hatanaka, stunned
the nation's smaller lenders earlier this year by telling them
to consider mergers as options for survival. The regulators fear
that at 105, there are too many regional banks in the nation's
shrinking local economies.
The regional banks together have roughly half of Japan's $4
trillion outstanding bank loans, while holding about as much in
deposits as the seven biggest banks. The average interest rate
that listed regional banks charge has fallen to 1.6 percent as
of March from 2.2 percent five years earlier.
Outside of Tokyo, Osaka and a few major cities, the outlook
for the working-age population - and thus the prospect for loan
demand - is grim. To avoid a potential bankruptcies or collapses
due to low deposits or poor loan coverage, Tokyo is encouraging
the ultra-conservative small banks to embrace change.
In a report on banks and insurers published this month, the
FSA pointed out there is a high correlation between outstanding
loans to local corporate clients and a region's working-age
population and said it estimates outstanding loans will decrease
in all regions by March 2025, based on demographic projections.
"There is a possibility that business model based on loan
increase (seen in many regional banks' business strategies) will
not be sustainable in medium and long term," the report said,
taken by regional bank insiders as another push by the
Hosomizo's tone is considered more moderate than that of
Hatanaka, who was seen by regional bank insiders as unusually
blunt. But the new regulator's remarks indicate he is equally
adamant that regional banks must adapt to survive.
"I don't think there is a difference in their stances toward
regional bank consolidation," said a senior executive at one of
Japan's three megabanks. "That's because the situation has not
changed. Regional banks have to do something, or they cannot
(Reporting by Sumio Ito and Taiga Uranaka; Additional reporting
by Takahiko Wada; Editing by William Mallard, Chris Gallagher
and Michael Perry)