TOKYO Jan 27 Japan's financial regulator this
month urged the nation's regional banks to consider mergers and
other tie-ups, a starkly explicit expression of concern for the
financial health of smaller lenders, documents showed on Monday.
"We would like you to consider business tie-ups and
operational consolidations as part of your management agendas,"
Financial Services Agency Commissioner Ryutaro Hatanaka told
mid-month meetings with officials from regional and second-tier
regional banks, according to minutes of the meetings, reviewed
Japan has more than 100 regional banks, accounting for
around 40 percent of the country's $4.6 trillion in outstanding
loans. But overall loan demand has shrunk 10 percent over the
last 20 years, prompting regulators to call for convincing
growth strategies and increasing pressure on the banks to
An FSA spokesman confirmed that Hatanaka attended the
meetings but declined comment on his remarks, which the
regulator has not made public.
Hatanaka's comments are in line with a September FSA policy
outline that said it was important for regional banks "to make
responsible management decisions promptly and consider medium-
to long-term management strategies looking five to 10 years
In this month's meetings, he warned that given the impact of
difficult conditions for small and midsize companies and Japan's
ageing society on regional lenders' profit structures, "many
banks are flashing caution signs".
Specifically, the FSA chief urged smaller banks to consider
risks stemming from their large holdings of Japanese government
bonds (JGBs). JGBs have buoyed regional banks' profits during
years of deflation and economic stagnation but a rise in
interest rates could hammer the value of those bonds.
(Reporting by Sumio Ito; Writing by William Mallard; Editing by