In Japan's Chiba, lender picks 'wings' alliance over mergers to battle economic woes
16/10/2020 10:24
* Alliance better option to tap regional banks' strength -
Sakuma
* Chiba Bank head says consolidation may do 'more harm than
good'
* Sakuma says open to alliances with non-bank entities
* Digitalisation to keep banks under pressure to change
By Leika Kihara and Takahiko Wada
TOKYO, Oct 16 (Reuters) - As an ageing population and years
of ultra-low interest rates prompt Japan to push for
consolidation among regional lenders, Chiba Bank is weathering
the challenge with a different approach - by forming loose
alliances or "wings" with other players.
One of the alliances started by Chiba Bank 8331.T - a
lender based in a prefecture that is home to the Narita airport
and Tokyo Disney Land - groups 10 regional banks across Japan
with total assets worth 70 trillion yen ($665 billion).
"Together, we try anything that may bring positives as there
are limits to what a single bank can do," Chiba Bank President
Hidetoshi Sakuma told Reuters on Friday. "We're open to and will
welcome any bank keen to join."
Under the alliance dubbed "tsubasa", or wings in English,
the members have offered syndicated loans, developed financial
products and created a common, cash-less settlement platform.
Ideas on how to cooperate pop up at casual gatherings among
the banks' heads, who even travelled to Europe and the United
States together to interact with lenders and fintech firms.
Members are under no pressure to participate in projects
that do not match their needs, Sakuma said.
"There could be more harm than good in consolidating", as
merging two banks could lead to power tussles and hurt
employees' morale, he added.
A recent union of Eighteenth Bank and Shinwa Bank in
Nagasaki, under which the merged bank would belong to a group
based in Fukuoka, has fuelled worries in the community of a
shift in focus away from local borrowers. urn:newsml:reuters.com:*:nL4N2GW3P7
'SHUN MERGERS'
Regulators have long prodded regional banks to consolidate
as their combined net profits tumbled 40% in the past four
years. More than 100 lenders across 47 prefectures compete for
lending margins that have sunk to 0.2%.
Prime Minister Yoshihide Suga too has emphasised 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 most about," Sakuma
said. "It's better for each regional bank to stay independent
and learn from one another."
Chiba Bank will continue to shun mergers, Sakuma added, as
its alliances pay off.
Its alliance with a lender in neighbouring Saitama has
generated cumulative synergies worth nearly 10 billion yen since
its launch in fiscal 2016, the bank says.
Chiba Bank's overhead ratio, a measurement of the operating
costs of business versus income, stands at around 53%, versus
the average of 73% for regional banks.
Its annual profits from core business operations rose 1.4%
to 67.5 billion yen in the year ended March.
The benefits of being based in Chiba, which also has Japan's
sixth largest population, puts the bank in a better position
than many others battling a shrinking local economy.
Still, the alliances are only among many steps Chiba Bank is
taking to stay relevant in an age of rapid digitalisation,
Sakuma said.
"We're thinking about it," he said, when asked whether Chiba
Bank would form alliances with non-bank entities. "Eventually,
we'd like to be a company like Alibaba."
The Chinese e-commerce giant 9988.HK has a host of other
businesses, including investments in online bank MYBank and
fintech affiliate Ant Group.
($1 = 105.2600 yen)
(Reporting by Leika Kihara and Takahiko Wada; Editing by Himani
Sarkar)
((leika.kihara@thomsonreuters.com; +813-6441-1828; Reuters
Messaging: leika.kihara.reuters.com@reuters.net))