Tokyo Report: Shakeout of Regional Banks Continues

Tokyo, April 27 (Jiji Press)--Realignments to correct the excessive
presence of regional banks are picking up pace this year amid the
deteriorating business environment for community lenders during the global
economic slowdown.
Kagawa Bank <8556> and Tokushima Bank <8561>, both based on the
island of Shikoku, announced an agreement earlier this year to integrate
their management under a joint holding company in April 2010.
In the Kansai region of western Japan, Kansai Urban Banking Corp.
<8545> in Osaka Prefecture and Biwako Bank <8552> in Shiga Prefecture agreed
to merge in March 2010.
A shakeout in the overcrowded regional banking sector has become
unavoidable as the deepening global recession, triggered by U.S. financial
turmoil, forced many local lenders into the red in fiscal 2008, which ended
in March, on huge losses related to securities investments and bad loans.
In addition, tougher regulations to enhance the transparency of
financial transactions and internal controls at financial institutions have
increased the need for additional personnel.
Regional banks "cannot survive unless they have a certain scale,"
says an executive at a second-tire regional bank.
As well as the two merger deals announced earlier this year, Bank
of Ikeda <8375> and Senshu Bank <8372>, both of Osaka Prefecture, are making
preparations to merge in October, as are Shonai Bank <8347> in Yamagata
Prefecture, northeastern Japan, and Hokuto Bank in neighboring Akita
Prefecture.
Elsewhere, Gifu Bank <8528> in Gifu Prefecture, central Japan, has
received a capital injection from Juroku Bank <8356>, another Gifu regional
bank, paving the way for their eventual management integration.
Japan's three megabanks are behind most of these deals. Mitsubishi
UFJ Financial Group Inc. <8306> has close ties with Bank of Ikeda, Senshu
Bank, Gifu Bank and Juroku Bank, while Mizuho Financial Group Inc. <8411>
has ties with Shonai Bank and Hokuto Bank. Meanwhile, Kansai Urban and
Biwako Bank are affiliated with Sumitomo Mitsui Financial Group Inc. <8316>.
The megabanks are reinforcing their ties with regional banks to
expand their business with blue-chip local companies and may play a leading
role in arranging further amalgamations of smaller lenders.
The two deals concluded earlier this year feature the integration
of management by second-tire regional banks across prefectural boundaries.
Similar deals may increase because small regional banks are afraid of being
absorbed by bigger lenders on their home turf, industry officials say.
At present, there are 108 regional banks, including second-tire
regional banks. Although some 20 regional banks have ceased to exist since
1997, when Japan was thrown into a financial crisis, as a result of business
failures or mergers, intense competition continues in the overcrowded
sector.
As regional banks are also exposed to competition from new rivals
such as Japan Post Bank and the privatized entities of former governmental
lenders, moves to survive via management integration appear unlikely to lose
steam anytime soon.