FOCUS: Japan Seeks to Bolster Regional Banks by Realignment

Tokyo, April 17 (Jiji Press)–Japan’s Financial Services Agency outlined plans last December to strengthen the management base of regional financial institutions, with the aim of helping regional lenders, including “shinkin” banks, play a bigger role in revitalizing local economies. The measures include making permanent a system for injecting public funds into financial institutions to prevent failures, as well as expanding subsidies available for mergers and acquisitions. Regional lenders are facing a rapidly changing business environment, shaped by Japan’s declining population and the end of the era of zero and ultralow interest rates. The government’s latest steps are expected to help accelerate realignment among regional financial institutions in the coming years. Up to 7.5 B. Yen The FSA’s strengthening package includes a deregulation measure that will allow investment subsidiaries of regional banks to serve as intermediaries in M&As. The public fund injection system under the financial functions strengthening law will, in effect, become a permanent framework. In addition, a new permanent special measure will be introduced to ease the criteria for capital injections in cases involving natural disasters or the spread of infectious diseases. The law also provides for a grant program to subsidize upfront costs, including system development expenses, for regional financial institutions pursuing an M&A deal or a business integration. Mergers already certified as eligible for these grants include those between Aomori Bank and Michinoku Bank in Aomori Prefecture, northeastern Japan, and Aichi Bank and Chukyo Bank in Aichi Prefecture, central Japan. In each case, 3 billion yen has been approved. To further support industry consolidation, the FSA will raise the maximum subsidy from 3 billion yen to 5 billion yen. For cases in which a financial institution takes over a lender that has been issued a business improvement order, or for mergers between different types of institutions–such as those between a regional bank and a shinkin bank, which is similar to a credit union–the FSA will provide subsidies of up to 7.5 billion yen. Through these measures, the agency aims to ensure that smaller regional banks and shinkin banks with weaker financial bases are not left behind in the accelerating wave of industry realignment, officials said. Across Prefectural Borders Since the Bank of Japan ended its negative interest rate policy and moved toward rate hikes in March 2024, the business environment for regional financial institutions has changed drastically. Higher lending rates mean wider margins, prompting banks to compete more aggressively for deposits, which are the primary funding source for lending. This, in turn, is creating fresh momentum for consolidation across the industry. Chiba Bank and Chiba Kogyo Bank, both based in Chiba Prefecture, eastern Japan, have reached a basic agreement on a management integration aimed at expanding their business scale. The process was set in motion after investment fund Ariake Capital sold its equity stake in Chiba Kogyo Bank to Chiba Bank. Ariake Capital has also been actively investing in regional banks in the Chukyo central region and the Kansai western region, raising the possibility that the fund could help trigger a broader wave of industry realignment in those areas as well. Regional banks are also beginning to explore partnerships beyond their prefectural borders. In 2025, Shizuoka Bank, Hachijuni Nagano Bank and Yamanashi Chuo Bank formed a comprehensive business alliance known as the Mt. Fuji Alps Alliance. The three banks are based in the central prefectures of Shizuoka, Nagano and Yamanashi, respectively. In March this year, Gunma Bank, headquartered in Gunma Prefecture in eastern Japan, and Daishi Hokuetsu Financial Group Inc., based in neighboring Niigata Prefecture, reached a definitive agreement on a cross-prefectural business integration scheduled for April 2027, aimed at expanding their earnings base. That deal was quickly followed by an announcement from Shizuoka Financial Group Inc., the parent company of Shizuoka Bank, and Bank of Nagoya, based in adjacent Aichi Prefecture, that they had reached a basic agreement to integrate their operations in April 2028. Hideo Oshima, a senior researcher at Japan Research Institute Ltd. and an expert on the management of regional banks, said, “Rather than being confined to their home markets, they can unlock greater opportunities by expanding across a wider region, particularly in areas such as support for digitalization and M&A activity.” He added, “I am closely watching to see whether moves toward cross-border integration–a step beyond (conventional) business alliances–will gain traction.” END [Copyright The Jiji Press, Ltd.]