In Nagasaki, bank consolidation may expose flaws in economical rescue plans
11 October, 2020
Once regarded as a model for consolidation, the merger of two regional banks in Nagasaki may expose flaws in Prime Minister Yoshihide Suga's intend to revitalize regional economies by creating more powerful lenders.
In Nagasaki's distant past, the town was a stronghold of trade and finance. Nowadays, Japan's larger ports absorb all the business, and local banks, crippled by a stagnant economy and shrinking customer base, scrap for profits.
That made the Oct 1 merger of Eighteenth Bank and Shinwa Bank a potential test case for turning around the city's fortunes. The brand new institution, formed after a lengthy battle between your antitrust watchdog and financial regulators, includes a roughly 70% share in the southern Japanese prefecture.
The merger gets the blessing of Suga, who has emphasized the necessity for regional banks to consolidate to survive dwindling local economies and years of ultra-low interest rates. Japan's banking regulator has organized the offer as a model for streamlining an overcrowded regional banking sector.
However the community isn't rejoicing.
Some in Nagasaki fret the merged bank, which would participate in a financial group located in Fukuoka prefecture, may shift its focus from local borrowers.
"I'm worried the brand new bank may pay less focus on Nagasaki," said Ryuji Kuon, owner of a boat tour firm. "There is no clear explanation about how the merger would help us."
Addititionally there is concern too little competition would supply the new bank, Juhachi-Shinwa, the power to impose higher rates or unfavorable conditions on small borrowers.
"In running a business, it certainly is good to get advice from multiple banks," said Tadayuki Yasui, owner of a pizza shop. "We won't have that opportunity anymore."
Juhachi-Shinwa says it'll ensure there is absolutely no disadvantage to borrowers, and will create a third-party committee that monitors its lending practices.
But such concerns were big enough to alarm Japan's antitrust watchdog, triggering a multiyear delay in the merger.
In addition they highlight the challenges Suga faces in creating more powerful banks without marginalizing smaller businesses.
"Mergers between regional banks operating in the same prefecture, such as for example what happened in Nagasaki, may cause branch closures and job losses that wont decrease well with the neighborhood community," said Satoru Kado, an analyst at Mitsubishi UFJ Research and Consulting.
"Without cost cuts, however, it would be hard for most regional banks to survive, as it's become so hard to generate profits out of traditional lending businesses," Kado added.
Regulators have long prodded regional banks to consolidate, as their combined net profits tumbled 40% within the last four years. Data show that more than 100 lenders scattered across 47 prefectures compete for lending margins that have sunk to a meagre 0.2%.
Wanting to avoid delays within the next merger, the government laid the groundwork for a smoother consolidation in-may by exempting regional bank consolidations from antitrust rules.
Policymakers say orderly mergers are necessary, as the coronavirus-stricken economy could cause piles of bad loans.
But regional banks have already been slow to respond, as dissimilarities in corporate culture make a lot of their executives cautious of mergers.
And revitalizing a prefecture like Nagasaki - an exemplar of other suffering local economies - will not be easy even with bigger banks.
As Japan's few gateways to the world during its two-century national isolation, Nagasaki thrived as a cosmopolitan financial hub. Until about a decade ago, it flourished as home to shipbuilding plants owned by Mitsubishi Heavy Industries. But the company started losing market share to its South Korean and Chinese rivals.
The prefecture's population shrank 1.12% in 2019, the eighth-fastest pace in Japan, as the younger generation moved to bigger cities searching for better jobs. Nagasaki's tourism industry evaporated amid the pandemic.
Tomoyuki Ushijima, executive officer of Juhachi-Shinwa, says the merger might help revitalize Nagasaki. But he added that borrowers must also get their acts together.
"The only method to survive within an economy with a shrinking population is to improve productivity," he said. "Given the huge challenges ahead, we, banks, made a decision to merge. Borrowers might need to consider doing so too."
Source: japantoday.com
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