Japan's SBI wants to shake up regional banks. It may get a Suga boost
23/09/2020 02:03
By Junko Fujita, Takashi Umekawa and Takahiko Wada
TOKYO, Sept 23 (Reuters) - Japanese financial firm SBI
Holdings Inc 8473.T has ambitions to revive struggling
regional banks by taking stakes and pushing them into
higher-margin businesses - a strategy that may get a boost from
the country's new prime minister.
Although regional lenders are dominant outside of Tokyo and
other big cities, many are tied to areas where the population is
ageing rapidly, and business has been hollowed out. The pandemic
has deepened the pain after years of low-margin lending.
Yoshihide Suga has pledged to strengthen local economies and
encourage regional banks to consolidate, a shakeup that many say
is long overdue.
"If the government is going to focus on revitalising local
economies, there absolutely will be a business opportunity in
that," SBI Chief Executive Yoshitaka Kitao said in an interview.
Kitao spoke to Reuters before Suga announced his intention
to run as leader of the ruling party to replace Shinzo Abe.
SBI has so far invested in four regional banks, and Kitao
says he wants to expand that to 10. The remaining six tie-ups
should come by the end of the financial year, he told Reuters.
If Suga pushes to revive local economies, regional banks
could benefit, said Natsumu Tsujino of Mitsubishi UFJ Morgan
Stanley Securities.
"Under such circumstances, SBI's framework would be more
attractive for regional banks, and that could be a tailwind for
SBI," she said.
CLOSE RELATIONSHIP
"There are a lot of regional banks, and some of them don't
seem to have changed very much," Suga told Reuters in an
interview last month, while still chief cabinet secretary.
Without prompting, Suga mentioned SBI's CEO, saying: "I hear
many regional banks are going to see Mr Kitao".
The two are close, according to one source. Suga has asked
Kitao for help with regional banks, Kyodo news agency reported.
SBI declined to comment on Kitao's relationship with Suga or
how the company could benefit under the new administration.
Founded in 1999, SBI was the financial unit of SoftBank
Group 9984.T until the tech firm exited in 2006. SBI owns an
online bank, an asset manager and Japan's largest online
brokerage.
Kitao says he wants to create the fourth-biggest banking
force in Japan, behind "megabanks" such as Mitsubishi UFJ
Financial Group Inc 8306.T .
His strategy is to use regional banks to expand SBI's
customer base, said Brian Waterhouse of Windamee Research, who
publishes on the Smartkarma platform.
"He is not trying to rescue the banking industry or save
regional banks. He sees this as an opportunity to expand his
empire," Waterhouse said.
Smaller cities have plenty of wealthy people, many of whom
don't know how to invest, especially in riskier assets with
potentially higher returns, Kitao said.
SMALL BANKS, BIG MONEY
Combined net profits of regional banks tumbled 40% in the
last four years, according to the country's Financial Services
Agency. Yet regional lenders still account for nearly half of
all bank deposits in Japan, holding some 368 trillion yen ($3.5
trillion) in cash deposits, according to central bank data.
For Shimane Bank 7150.T , in the western part of the main
island, SBI's 34% stake has meant a "dramatic change" in how it
invests, a spokesman said.
Profits from its securities portfolio improved after it
invested with SBI Asset Management, which has connections with
global fund managers such as BlackRock Inc BLK.N , the
spokesman said.
Chikuho Bank 8398.FU , on the southern island of Kyushu,
has been able to tap an SBI investee company, BASE, to help
build e-commerce sites for its customers, something the bank
couldn't do itself, a spokesman said.
"The biggest advantage from the alliance has been SBI's
connection with technology firms," the spokesman said. SBI had a
2.9% stake in Chikuho as of March, according to Refinitiv data.
Fukushima Bank 8562.T , which is 19% owned by SBI, has
teamed up with an SBI-owned staffing company to help its
customers secure workers.
The bank, a distant third in the prefecture, needs to expand
beyond traditional lending, a representative said.
As Japan's population falls and market shrinks, some banks
may not want to merge, said Windamee's Waterhouse.
"For these banks who are looking for more capital and
rescue, Kitao is perhaps the only option at the moment."
($1 = 104.4800 yen)
(Reporting by Junko Fujita, Takashi Umekawa, Takahiko Wada;
Editing by David Dolan)
((junko.fujita@thomsonreuters.com, Reuters
Messaging:junko.fujita.reuters.com@reuters.net;813-4563-2711))