RETAIL BANKING | Staff Reporter, Japan

Japan mulls looser M&A rules to speed up regional bank mergers

The drawn-out approval process will be re-assessed.

Reuters reports that the Japanese government has kicked off a debate on changing antitrust rules with the aim of making it easier for struggling regional banks to merge.

Prime Minister Shinzo Abe has ordered his ministers to come up with ways to facilitate regional bank consolidation that could include a revision of legislation or exemptions to existing regulations.

Also read: Struggling Japanese regional banks go over the edge to cut losses

One area that advisers could look at will be the lengthy process to approve bank mergers after it took two years and two months to approve the merger between Shinwa Bank and Eighteenth Bank.

Regional banks have been bearing the brunt of the ultra-low interest rate environment engineered by the central bank as loans still constitute a bulk of their assets at 64% despite increasingly lower returns. “Prevailing low-interest-rate environment continues to squeeze banks’ profit,” Fitch Ratings analyst Kaori Kaori Nishizawa said in a report. 

Although regional banks have began consolidation efforts since 1990s with smaller Tier 1 regional banks merging with Tier 1 lenders and city banks, consolidation has been slow, added Nishizawa.

As of March, 52 out of 106 regional banks in the country have booked losses in the past two years or more on their lending business, according to the Financial Services Agency.

Also read: Japanese banks hit by lower net interest income as loan demand dwindles

Against this dismal environment, a number of regional banks have turned to aggressive practices to boost profitabilty at the expense of corporate governance standards. This follows the case of Suruga Bank who published a report highlighting an aggressive corporate culture that witnessed employees resorting to fraudulent activity to meet unrealistic growth targets and the resignation of Higashi-Nippon Bank chairman in August over improper lending practices.

Additionally, around 50% of Japanese companies rely on regional banks as their main source of borrowing, government documents show, highlighting the spillover risk should regional banks fail.

Here’s more from Reuters:

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