In Chiba, Japan, lender chooses ‘wings’ alliance over mergers to tackle economic problems

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TOKYO (Reuters) – As an aging population and years of ultra-low interest rates spur Japan to push for consolidation among regional lenders, Chiba Bank is rising to the challenge with a different approach – by forming loose alliances or “wings” with other actors.

A Japanese yen note is visible in this illustrative photo taken on June 1, 2017. REUTERS / Thomas White / Illustration / Files

One of the alliances initiated by Chiba Bank 8331.T – a lender based in a prefecture that houses Narita Airport and Tokyo Disney Land – brings together 10 regional banks across Japan with total assets worth 70,000 billion yen ($ 665 billion).

“Together, we are trying anything that can bring positive results because there are limits to what a single bank can do,” Chiba Bank chairman Hidetoshi Sakuma told Reuters on Friday. “We are open to and will welcome any bank wishing to join us. “

As part of the alliance dubbed “tsubasa,” or wings in English, members offered syndicated loans, developed financial products and created a common platform for cashless settlement.

Ideas on how to cooperate crop up in informal meetings between bank chiefs, who have even traveled to Europe and the United States together to interact with lenders and fintech companies.

Members are under no pressure to participate in projects that do not meet their needs, Sakuma said.

“There could be more harm than good in consolidating,” as the merger of two banks could lead to power struggles and hurt employee morale, he added.

A recent union of Eighteenth Bank and Shinwa Bank in Nagasaki, whereby the merged bank would be owned by a Fukuoka-based group, fueled community concerns that the attention of local borrowers was being distracted.

‘SHUN FUSIONS’

Regulators have long pushed regional banks to consolidate as their combined net profits have fallen 40% in the past four years. More than 100 lenders in 47 prefectures are fighting over lines of credit that have fallen to 0.2%.

Prime Minister Yoshihide Suga also stressed the need for consolidation, but regional banks have been slow to respond.

“Each region has its own history and unique industrial structure, which lenders based there know best,” Sakuma said. “It is better for each regional bank to remain independent and learn from each other.

Chiba Bank will continue to avoid mergers, Sakuma added, as its alliances are paying off.

Its alliance with a neighboring lender Saitama has generated cumulative synergies worth nearly 10 billion yen since its launch in fiscal 2016, according to the bank.

Chiba Bank’s overhead rate, a measure of companies’ operating costs relative to revenues, is around 53%, compared to the average of 73% for regional banks.

Its annual profits from its core businesses rose 1.4 percent to 67.5 billion yen in the fiscal year ended March.

The perks of being based in Chiba, which also has Japan’s sixth largest population, puts the bank in a better position than many others struggling with a declining local economy.

Yet alliances are just one of the many steps Chiba Bank is taking to stay relevant in the age of rapid digitization, Sakuma said.

“We’re thinking about it,” he said, when asked if Chiba Bank would form alliances with non-bank entities. “Ultimately, we would like to be a company like Alibaba. “

The Chinese e-commerce giant 9988.HK has a host of other businesses, including investments in online banking MYBank and fintech subsidiary Ant Group.

Reporting by Leika Kihara and Takahiko Wada; Editing by Himani Sarkar


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