Financial Services Agency (FSA), the new financial regulator of Japan, is asking regional and small lenders to explore merger and integration options, to boost profits and capital positions.
As cited in Reuters, the newly appointed FSA commissioner Kiyoshi Hosomizo told regional bank officials in an off-the-record meeting that action was needed.
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"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 by the publication.
Hosomizo’s predecessor at the FSA, Ryutaro Hatanaka, also asked the smaller banks earlier this year to consider mergers as an option for survival.
The financial watchdog feels that small lenders numbering 105 in total, are too much in the nation’s shrinking local economy. Together, the regional banks have approximately half of Japan’s $4tn outstanding bank loans, and they own deposits that are equal to the seven biggest banks.
Tokyo is encouraging the ultra-conservative small banks to embrace change and to thwart any possibility of bankruptcy or collapses due to low deposits or poor loan coverage.
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By GlobalDataIn a report on banks and insurers published this month, the FSA said : "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."
