Mon. Nov 29th, 2021

Regulation HK

Financial Regulator

Japan to Allow Regional Banks to Expand Outside Core Busines

2 min read

FSA commissioner Toshihide Endo wants struggling regional lenders to engage with customers and help them grow, as a way to boost bank profitability and regional economies.

Japan’s FSA (Financial Services Agency) commissioner Toshihide Endo has outlined the regulator’s plans to boost the country’s ailing regional banks, which have suffered years of weak profitability amid near-zero interest rates.

According to an FT report, the plan will include allowing regional lenders to enter new areas of business such as offering management consultancy and trading services to generate profits.

“To get some kind of revival in regional economies, we need to change the behaviour of the financial institutions. Instead of sitting and waiting for companies to ask for money, why not go to companies yourselves offering advice and consultancy on how to find customers and grow your business?” he said.

Traditionally, regional banks primarily lent money to local borrowers with strong balance sheets, but Endo wants them to engage with customers and help them grow, including by setting up regional trading companies to help clients market their products.

The move would require legislative changes to repeal a law that currently limits banks to a maximum 5% ownership stake on non-banking companies.

Separately, the FSA is also working towards making it easier for regional banks to merge, which Endo said will lead to efficiencies and cost savings as a result of branch closures and sharing of IT systems and back office operations.

M&A activity between banks has so far been hampered by Japan’s competition law, but a bill is expected to pass this year that will grant exemptions for bank mergers.

According to Endo, the FSA will also allow regional banks to provision against bad loans based on the riskiness of their loan books. Under the current approach, banks provision for bad loans based on past experience.

Separately, recent reports indicate the FSA is also looking to promote an open API framework that enables regional banks to open up their internal IT systems to fintech companies.

However, regional banks have been struggling with the technology-related costs of the initiative, while fintechs have complained of high fees to access bank systems and data.

The FSA has asked regional banks to report on how they intend to solve the problem by month-end.

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