Japan finance minister says mergers are ‘one option’ for ailing regional banks

April 5, 2019

TOKYO (Reuters) – Japanese Finance Minister Taro Aso said on Friday mergers could be one option for the country’s regional banks – struggling with squeezed profits amid prolonged low interest rates – to improve financial services.

Aso, who also serves as minister overseeing the financial services watchdog, made the comment days after an advisory panel to Prime Minister Shinzo Abe discussed a plan to ease antitrust rules that would enable some regional banks to merge.

“We will review oversight guidelines to urge improvement in management at an early stage. Regional financial institutions are fit right now, but we need to consider the way to respond,” Aso told reporters after a cabinet meeting.

“To maintain financial services mergers could be an option.”

The current legislation focuses on what the market share of the combined entity would be to determine whether it would hurt competition.

To address this concern, the government is likely to ease merger rules on a temporary basis and strengthen the monitoring of newly merged banks to ensure they do not abuse their larger share of local lending.

Profitability at regional banks has taken a hit as the Bank of Japan’s super-loose monetary policy has triggered a collapse in spreads between lending rates and financing rates, which depresses bank margins.

BOJ’s ultra-easy monetary policy is making it tough for commercial banks to earn profits out of lending, a problem that cannot be fixed through bank mergers, the chairman of a major regional bank in southern Japan told Reuters last month.

In light of growing concern over the plight of regional banks, the Financial Services Agency on Wednesday proposed rules to expand its oversight of regional banks, including broad stress tests, with more focus on lenders’ future profitability.

(Reporting by Tetsushi Kajimoto; Editing by Sam Holmes)

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