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Japan Regional Banks Take Lead in Digitization

The Yomiuri Shimbun
A Bank of Yokohama employee shows off a new tablet-based system for customers at one of its branches.

A divide has emerged in the regional banking industry. Banks with solid management bases and high capital ratios have taken the reins on digitization, leaving the institutions that cannot afford to do so trying to find ways to cut costs by reducing branch numbers and personnel.

The Bank of Yokohama, a Concordia Financial Group Ltd. subsidiary, installed a tablet-based system in all of its branches this month that enables customers to complete procedures such as opening accounts and registering address changes paperlessly.

“Customer waiting times have been drastically reduced,” a salesperson at the bank’s head office in Nishi Ward, Yokohama, said

Leading regional banking group Concordia has set a goal of reducing the workload at its branches and administrative centers by about 30% over five years from fiscal 2019 by promoting digitization.

“We’ve made progress in streamlining [operations]. The challenge for next fiscal year is to expand digital services for customers,” a member of the bank’s digital strategy department said.

■ Smart options

Major regional banks in western Japan are also aggressively making moves.

Fukuoka Financial Group Inc., which owns the Bank of Fukuoka, Kumamoto Bank and Juhachi-Shinwa Bank in Nagasaki, became the first regional organization to obtain a license to operate a smartphone app-based bank in December.

Minna no Bank, which is scheduled to start full-scale operations around May 2021, is aimed at younger customers. Smartphone users will be able to complete all banking procedures, such as opening bank accounts and applying for loans, on the Minna no Bank app.

“The number of people who visit bank [branches] has fallen by about 40% in the past decade. We have to adapt more drastically than other industries to keep up with changes in customer demand,” said Fukuoka Financial Group Chairman and President Takashige Shibato.

Regional banks that are struggling with new investments are taking a more defensive stance.

Nanto Bank in Nara is implementing structural reforms led by Vice President Satoshi Ishida. A former official of the Financial Services Agency, the 46-year-old Ishida is a young executive with expertise in corporate revitalization.

The bank plans to reduce the number of branches by about 30% over 10 years. It also aims to reduce the number of employees over five years, to about 2,000 from about 2,500 — as of the end of September 2020.

Some banks have opted to shorten opening hours. Fukushima Bank’s six branches have been providing counter services only

in the morning since autumn.

Branch employees who work on counters in the morning focus on customer visits and other responsibilities in the afternoon, in an effort to make effective use of limited human resources, according to the bank.

Yuki Fukumoto of NLI Research Institute said: “Smaller regional banks are lagging behind in cost reduction efforts compared to large regional banks. They need to improve the efficiency of their branches and link their systems.”

■ Securities trading

Regional banks have a thinner pool of human resources compared to the nation’s megabanks.

There is an urgent need for regional institutions to raise their level as they lack the investment capabilities to earn profits through trading stocks, government bonds and other securities.

According to the Bank of Japan’s Financial System Report released in October, if regional banks book the same gains on the sale of securities as those posted in the last three years through fiscal 2019, unrealized gains will dry up in 4.3 years.

While unrealized gains of major banks have fallen about 20% compared with those in fiscal 2015, at regional banks the fall was about 60%, leaving them with little room to maneuver.

Jimoto Holdings Inc.’s Kirayaka Bank in Yamagata held unrealized losses of ¥4.3 billion as of the end of September 2020.

“Many regional banks do not have anyone who can teach investment management,” said Naoto Oguri, president of Nagomi Capital Co., which trains investment managers for regional banks.

Some regional banks have been looking outside to escape the situation. Jimoto Holdings and Shimane Bank have decided to form an equity tie-up with major internet securities firm SBI Holdings Inc. to benefit from its investment expertise.

“By relying on SBI, we will be able to move in the direction of stable investment management in the future,” Jimoto Holdings Chairman Takashi Suzuki said.