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Japan approves merger in struggling regional bank sector after lengthy review

[TOKYO] Japan's antitrust regulator has approved a merger of Daishi Bank Ltd and Hokuetsu Bank Ltd, in a decision that pit considerations of competition against regional lenders' struggle to survive.

The Fair Trade Commission's (FTC) decision comes after a lengthy review of the merger plan, initially announced in April, which had forced the banks to push back their scheduled merger by six months to October 2018.

The approval comes at a time when prospects dim for regional banks, many of which are losing money in their core businesses as an aging population and migration to bigger cities shrinks local economies.

The central bank's negative interest-rate policy - which effectively charges commercial lenders for deposits - has also increased pressure on lenders to put money to work, prompting Japan's roughly 100 regional banks to raise efficiency or merge.

But FTC officials have voiced concern about mergers reducing lending options. Rather than seeking to merge with local rivals to avoid competition, regional banks should try to find other ways to diversify sources of revenue, FTC officials have said.

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On Friday, the FTC said it approved the Daishi-Hokuetsu merger because it found no threat to competition during its review, which involved a survey of 6,900 Niigata firms.

"The decision means the FTC would block a merger of regional banks if the merger is seen as undermining competition," said Nana Otsuki, chief analyst at Monex Group.

"The FTC would not help regional banks' survival through a merger."

Over half of regional banks lost money on core businesses - lending and fees - in the year through March 2017, prompting the Financial Services Agency, which oversees the industry, to say consolidation could be considered for such banks to thrive.

But FTC concerns about shrinking competition have delayed Fukuoka Financial Group Inc's plan to buy Eighteenth Bank Ltd to merge with its Shinwa Bank, sources have told Reuters. The resulting entity would control 70 per cent of lending in the southern prefecture of Nagasaki.

The resulting entity from a Daishi-Hokuetsu merger would control 55 per cent of lending for mid-sized and large firms in Niigata prefecture, the FTC said. The second-largest lender would control 15 per cent with the third at 10 per cent.

"We believe there'll be a competitive force within and also from outside Niigata prefecture," Shuichi Sugahisa, director general at the FTC's Economic Affairs Bureau, said at a briefing.

"Consumers will still have several borrowing options."

The FTC said it has approved all 15 proposed regional bank mergers in the past decade, including Daishi-Hokuetsu.


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