TOKYO: Regional banks in Japan are increasingly bracing for greater pressure for realignment from SUGA Yoshihide, who was elected new leader of Japan’s ruling Liberal Democratic Party on Monday to succeed outgoing Prime Minister ABE Shinzo.

“There are too many regional banks in Japan,” Suga said in a press conference on Sept. 2, when he declared his bid to run in the LDP leadership election.

“Realignment will be an option,” he said in a press conference the following day, casting doubt about the sustainability of regional banks amid the tough business environment surrounding them, such as the country’s falling population, ultralow domestic interest rates and the novel coronavirus epidemic.

Regional banks that are aiming to survive on their own were surprised by the remarks by Suga. The remarks “came like a bolt from the blue,” an official of a second-tier regional bank said.

The regional banking industry is concerned about the possibility of realignment being promoted under the lead of politics. Currently, there are 102 regional and second-tier regional banks in the country.

Suga is set to be elected prime minister in a vote at the Diet, Japan’s parliament, on Wednesday.

As chief cabinet secretary under the Abe administration, Suga has given a push to realignment moves among regional banks.

Suga played a major role over the business integration of Fukuoka Financial Group Inc., which has Shinwa Bank, based in the city of Sasebo, Nagasaki Prefecture, southwestern Japan, under its wing, and Eighteenth Bank, based in the city of Nagasaki, the capital of the prefecture.

He mediated between the Financial Services Agency, which supported the Fukuoka Financial-Eighteenth Bank integration, and the Fair Trade Commission, which pointed to antitrust problems related to the move. Shinwa Bank and Eighteenth Bank are set to merge to create Juhachi-Shinwa Bank on Oct. 1.

Following the developments related to the Fukuoka Financial-Eighteenth Bank integration, the government set up a special rule under the antimonopoly law, making it easier for regional banks to unify their operations.

With the special rule expected to take effect in November, an official at a regional bank in western Japan expressed concern, saying that pressure for realignment may increase as the government tries to realize the first case of regional bank integration using the special rule early.

After Suga’s remarks seeking regional bank integrations early this month, speculation grew over a possible merger using the special rule between Aomori Bank and Michinoku Bank, both regional banks operating in Aomori Prefecture, northeastern Japan.

Under the special rule, an integration of regional banks operating in the same prefecture will be approved as an exception even if the move leads to a surge in their market share.

An official of a regional bank voiced doubt, saying, “Integration will not necessarily be a solution.”

For many regional banks, however, aiming to survive on their own by overcoming pressure for realignment will be very challenging, analysts said.

JIJI Press