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Q.
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Financial Services Agency proposed the draft amendments of the Comprehensive Guidelines for Supervision of Regional Financial Institutions to review the operation of Early Warning System. I’d like to ask your comments on what kind of efforts are expected for regional banks and other such financial institutions in the current difficult environment?
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A.
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We have decided to revise the guidelines in order to promote their business improvements ahead of time through conducting the monitoring of sustainability of their profitability and soundness as well as the current situation of regional financial institutions. Even under the declining population and low interest rates environment, I think that it is important for regional financial institutions to establish their sustainable business models on their own, including the business model of improving the productivity of regional companies by providing appropriate advice and financing such as management improvement, business succession support and loans based on the assessment of business performance. Therefore we will conduct the monitoring in order to promote the forward-looking measures and management improvements by regional financial institutions, based on this revised guidelines.
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Q.
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In the other day’s Growth Strategy Council-Investing for the Future, a new recommendation on management integration of regional banks is made, where regional banks need not to severely consider their integrated market share when they face the difficult business situation. What is your view on that?
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A.
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It is natural that the Japan Fair Trade Commission (JFTC) regards market share as an important factor in view of the Act on Prohibition of Private Monopolization and Maintenance of Fair Trade. If too much emphasis on the integrated market share of regional banks’ business integration could cause the bankruptcy of regional banks, Financial Services Agency will have to mainly take responsibility for that, not the JFTC. And it actually would cause problems for the region. In this sense, we have to take appropriate measures in advance in order to avoid the worst-case scenario which there are no regional financial institutions in the region although the current regional financial system is sound as a whole. It is important for us to have considered any countermeasures beforehand just in case. I recall with certainty that this topic was actually raised both in Nagasaki and Niigata’s cases.
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Q.
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I understand that whether or not banks will consolidate or integrate is fully up to the decision made by the respective banks’ management. However, considering various circumstances for regional banks, particularly those not located in urban areas, do you think consolidation or management integration should be promoted? Please give me your thoughts on this.
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A.
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Generally speaking, such business consolidation or management integration issues should be determined by respective banks’ management. However, it is actually difficult for banks that had long been rivals to integrate. As for the management integration in Nagasaki, it’s also a rather difficult situation when someone’s loan claims are transferred to another bank, and for borrowers as well, dealing with another bank. However, the consolidation or management integration can be one of the prospective measures for maintaining financial infrastructure. Nonetheless, if we consider what will occur in this consolidation or management integration, I think a variety of situations might become possible, such as an integrated financial institution raising interest rates entirely of its own accord. However, in such a case, different banks from other regions may enter into the region. From the perspective of the principle of competition, therefore, this type of situation would not actually occur, unlikely as it was in the past.
