Japan’s banking watchdog the Financial Services Agency (FSA) said that it expects more cross-border financial tie-ups as fintechs disrupt the country’s banking system, Reuters reported.

The deals will be similar to the tie-up between internet banking giant SBI Holdings Inc and regional banks, the regulator said.

FSA director-general of bank supervision Teruhisa Kurita said that Japan’s progress in financial technology can bring organizational changes to the banking sector.

This is possible by eliminating barriers between lending and other services, the report added.

Speaking on SBI’s tie-ups with regional banks, Kurita said: “We will likely see more such cases as industry boundaries start to disappear. There could be combinations we never thought about.”

Regional banks in the country are grappling with years of low-interest rates and declining population, which has impacted their profits.

This led some banks to consolidate their businesses or ink deals with each other to ensure business continuity.

Similarly, some joined forces with SBI Holdings, which has already created a nationwide group as it already owns stakes in many regional banks in Japan.

On being questioned whether Japan’s regional banking industry was over-crowded, Kurita said: “I don’t think it’s a question about the number of banks. What is important is for each regional bank to be clear about what business model it is pursuing.”

He added that consolidation is not the only option for regional banks to survive.

Over 70% of regional banks in Japan are grappling with shrinking profits, which led the government to provide the footing required for them to consolidate or start new businesses.

Japan government spokesman Yoshihide Suga said that more consolidation among regional banks was required.

Kurita added: “Conditions surrounding Japan’s banking industry are very severe. We are experiencing huge changes. Unless you adapt to these changes, it’s hard to survive.”