Bank of Japan’s M&A fix will test depth of slumber
11/11/2020 08:55
(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
By Jennifer Hughes
HONG KONG, Nov 11 (Reuters Breakingviews) - Those who
remember the Bank of Japan’s shock adoption of negative rates in
2016 won’t be so fazed by its surprise move on Tuesday offering
to pay interest to encourage regional lenders to merge or cut
costs. Other central banks watch The Land of the Rising Sun for
its bold tests of monetary policy. For Governor Haruhiko
Kuroda’s fix to succeed, shareholders will need to add their
sticks to the BOJ’s carrot.
The myriad lenders scattered across Japan’s 47 prefectures
have been merger candidates for many years. The country has
80-odd listed banks, the smallest of which has a market
capitalisation of $35 million. Years of low interest rates and
an ageing population have taken their toll, with regional banks’
combined profits falling 40% in the past four years, Reuters
reported. Lending margins are often just 0.2%.
The BOJ is offering to pay 0.1% on current account balances
held by regional lenders on meeting certain criteria, including
merging, combining businesses, or slashing costs. That’s
substantial given the 0.14% average return Moody’s calculates
for the assets of all listed regional banks in the year to
March. And the bar to qualify is lower for moving quickly:
Submit a plan before March, and the cuts must take out 1% of
costs. The threshold later rises to 3%.
Yet Japan Inc has for decades resisted change even in the
face of financial logic. Last month local businesses in Nagasaki
fretted that moving one merged bank’s headquarters to the
neighbouring prefecture left them without local coverage. Two
weeks ago, the president of Chiba Bank 8331.T , east of Tokyo,
told Reuters that the alliance of 10 banks it had formed was
better than merging because of each region’s uniqueness.
The BOJ’s use of carrots rather than stick indicates a
reluctance to force change – and mandate mergers - even as it
warned that the status quo will soon risk the smooth functioning
of Japan’s financial system. The warning softens the blow of
using taxpayers’ cash to incentivise corporate action.
Shareholders have become more vocal in other industries
following earlier policies aimed at improving governance. Japan
probably doesn’t have the years all those changes took before
its regional lenders need the sort of rescue the BOJ is trying
to avoid.
On Twitter https://twitter.com/JennHughes13
CONTEXT NEWS
- The Bank of Japan on Nov. 10 unveiled a scheme designed to
encourage regional lenders to consolidate by offering higher
deposit rates to those who merge or integrate units.
- The central bank said it will introduce a special deposit
facility under which it will pay 0.1% interest on current
account balances held by regional lenders that meet certain
criteria.
- For previous columns by the author, Reuters customers can
click on HUGHES/
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BOJ unveils scheme incentivising regional bank consolidation
urn:newsml:reuters.com:*:nL1N2HW0FR
In Japan's Chiba, lender picks 'wings' alliance over mergers to
battle economic woes urn:newsml:reuters.com:*:nL4N2H63XC
BREAKINGVIEWS - Review: Shinzo Abe’s elusive Japanese dream
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(Editing by Una Galani and Katrina Hamlin)
((jennifer.hughes@thomsonreuters.com; Reuters Messaging:
jennifer.hughes.thomsonreuters.com@reuters.net))