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With the advent of a “world with interest rates,” new momentum is growing for the reorganization of regional banks. It is vital for them to strengthen the foundations of their management and play a solid role in supporting local economies.
The Bank of Japan raised its policy interest rate to around 0.5% in January, making it easier for financial institutions to make a profit from interest margins on loans, which are their core business.
As a result, competition for deposits, which are the source of loans, has intensified among financial institutions, and moves to raise deposit rates are spreading.
Under these circumstances, regional banks are on the defensive, as pure-play internet banks providing services through the internet, which have an advantage in terms of management costs, have gone on the offensive by offering higher interest rates. This has prompted regional banks to seek to increase their competitiveness through such means as business tie-ups and management integration between regional banks.
In March, Chiba Bank acquired shares in Chiba Kogyo Bank, making it the largest shareholder. Daishi Hokuetsu Financial Group, Inc. in Niigata Prefecture and Gunma Bank announced that they were considering a possible business integration. There was also a case in which regional banks across three prefectures formed a comprehensive business alliance.
Regional banks are a cornerstone for supporting local economies. They are being tested as to whether they will be able to improve their management efficiency and at the same time hone their lending capabilities. It is hoped that they will think outside the box when choosing partners for their alliances.
While it is natural to seek management efficiency through integration, that alone is not sufficient. It is important to accurately grasp the needs of the communities and support their businesses with new ideas.
A financial group with Yamaguchi Bank and other entities under its umbrella has been involved in a revitalization project for a long-established Japanese-style inn — which had been closed — in a hot spring resort town in Nagato, Yamaguchi Prefecture. It opened in March as a complex with a restaurant, sauna and other facilities.
Efforts have also been widely made in which a regional bank establishes a “regional trading company” in cooperation with a local company, to expand sales channels for agricultural and marine products and seek to develop new products. The development of human resources with expertise in areas such as corporate revitalization and business succession will also be an important issue.
In 2021, the Financial Services Agency initiated a system to help regional banks reorganize so that they can support local economies that were battered by the COVID-19 pandemic. When financial institutions merge their operations under this program, the government partially subsidizes the cost of system integration and other expenses.
Many financial institutions, such as Aomori Bank and Michinoku Bank, have taken advantage of this program. Although the application deadline was set for the end of March 2026, the FSA intends to consider extending the program’s operation in response to the new momentum for reorganization among regional banks.
The negative impact of high tariff measures imposed by the administration of U.S. President Donald Trump on the Japanese economy could be prolonged. Regional banks should draw up new, aggressive strategies and work to invigorate regional economies.
