Is consolidation of Japanese regional banks underway?

Regional banks face tougher business environment, however.

Analysts said merger talks between regional banks Tokyo Tomin Bank and Yachiyo Bank in the Tokyo area seems to increase the possibility of further reorganizing the regional banking sector.

It has lagged behind the shake-up that has realigned Japan’s major banks since regional economies that form their base of operations has failed to gain steam.

The possible merger aims to increase scale to improve management efficiency and create a new bank that will be a leading regional bank in the Tokyo area.

Regional banks still rely on income from interest for a large proportion of their profits unlike larger banks that improved their performance by increasing overseas capital and strengthening consumer finance services.

Fierce competition among regional banks means they are unable to charge high rates for loans, which puts downward pressure on profits.

The government said the total gross operating profits of Japan’s 64 regional banks, its 41 second-tier regional banks and Saitama Resona Bank slipped 1.1% in fiscal 2012 compared to a year earlier, the second straight drop in income for their main businesses.