Japan's banks must persist with consolidation, says new lobby head

Tokyo

JAPANESE banks must move forward with consolidation by using every-thing from mergers to informal tie-ups to tackle declining profitability, according to the new chief of the industry's main lobby group.

"Consolidation has to advance from here, and the formats for doing this are going to get more diverse," Koji Fujiwara, who became chairman of the Japanese Bankers Association on April 1, said. He also sees more scope for cooperation between regional and large banking groups.

Japan has more than 100 banks, some of which are now combining to cope with a shrinking population and negative interest rates. Consultancy Bain & Co has estimated that about half of the country's lenders will disappear by around 2025, and the Bank of Japan said in October that lenders have too many employees and branches.

Mr Fujiwara, who is also president of Mizuho Financial Group Inc's main lending unit, said he sees room for win-win relationships where large banks assist small businesses in rural areas that want to expand overseas and local lenders provide enhanced services. Mizuho formed a partnership with Shizuoka Bank Ltd in March to boost efficiency.

Mitsubishi UFJ Financial Group Inc and Sumitomo Mitsui Financial Group Inc are themselves products of mergers after swelling bad loans roiled Japanese banks around the turn of the century.

In recent years, some local lenders have combined under holding companies such as Concordia Financial Group Ltd and Fukuoka Financial Group Inc.

Mr Fujiwara sees lenders performing a key function as the population ages and falls. "Banks must play a large role in areas like business succession," said Mr Fujiwara, who replaced MUFG's Nobuyuki Hirano as chairman of the lobby group. "We shouldn't be pessimistic about linking this to business." BLOOMBERG