, Japan

Mergers imminent amongst Japan's regional banks: study

Ultralow rates, competition will hurt profits to the point where revenue no longer covers operating expenses.

The tough operating environment brought about by the ill-effects of the pandemic mixed with old problems in the banking sectors may just push Japan’s long embattled regional banks to begin merging.

Ultralow rates and sever competition amidst an ageing and shrinking population will hurt regional banks’ profits to the point where revenue will no longer cover operating expenses, the Moody’s Japan K.K. warned in a report.

“Net interest income will continue to decline as net interest margins (NIMs) fall because of ultralow rates and as demand for credit weakens, which will hamper revenue growth and hurt margins as competition for lending intensifies,” says Tomoya Suzuki, a Moody’s assistant vice pesident and Analyst.

“Meanwhile, growth in fee income will be gradual and insufficient to offset declines in net interest income, and credit costs increases will add to the pressure on regional banks’ profitability as their asset quality deteriorates due to coronavirus-led economic disruptions,” added Suzuki.

As capitalization and viability weaken, regional banks will look to consolidate in order to cut costs and survive, the report stated.

Consolidation in the sector has far been slow particularly amongst banks that are still profitable, Moody’s noted. But weakening profitability could force banks to consider mergers in the face of a challenging operating environment.

Banks may also enter into alliances with one another, although the cost benefits are limited compared with mergers, because alliances do not require as strong a commitment to cost savings.

Under banks’ current alliances, the scope of cost savings is largely limited to expenses related to core IT systems. Despite this, most regional banks so far have opted for alliances, which have helped lower costs through the sharing of systems regardless of geographic location, because of the time and costs involved in a merger, the report found.

Since you're here...

...there are many ways you can work with us to advertise your company and connect to your customers. Our team can help you dight and create an advertising campaign, in print and digital, on this website and in print magazine.

We can also organize a real life or digital event for you and find thought leader speakers as well as industry leaders, who could be your potential partners, to join the event. We also run some awards programmes which give you an opportunity to be recognized for your achievements during the year and you can join this as a participant or a sponsor.

Let us help you drive your business forward with a good partnership!

Get Asian Banking & Finance in your inbox

VCs flocking to "lucrative" APAC payments segment: report

Global VC deals rose to 620 in Q1 2021.

China injects $15.5b cash into the financial system to maintain liquidity: report

The nation’s top leaders recently described economic recovery as “unbalanced and unstable.”

Chart of the Week: Card payments in China to rebound 21.3% in 2021

Card payments are set to rise as economic activities gathers pace.

Citi APAC adds nearly 650 new wealth professionals in 2021 so far

The group has added over $5b in net new money in Q1 alone.

Goldman Sachs ramps up China ambitions with hiring spree: report

It is planning to add over 400 new people in its headcount in 2021 alone.

Citi appoints new head for private banking arm in South Asia

Lee will have direct responsibility over the private bank arm of Singapore, Malaysia.

Citi APAC rolls out gender diversity program for investment, securities arm

The program’s 50 top candidates will have the chance to be recruited by the bank.

Standard Chartered, EastWest on the blueprint for building the bank of the future

Data is the new oil, says Sarabjit Anand, Standard Chartered’s CIO for Singapore and ASEAN.

Low costs buoys Australian banks’ profits, but pressures to persist

Operating profit is 46% higher than last year, but pre-impairment earnings remain subdued.

HSG shares insights on modelling core banking IT for the digital economy

Sisi Yu gives us a glimpse of how banks can achieve higher performance through improved services.