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Banking & Finance

Japan's competition watchdog at odds with financial sector over mergers

Customer convenience of prime importance as JFTC official asks, 'Consolidation for whom?'

Akinori Yamada, secretary general of the Japan Fair Trade Commission, speaks about mergers involving regional banks at a press conference in Tokyo on Wednesday.

TOKYO -- The rift is widening between Japan's regional banks and the Japan Fair Trade Commission, even as the competition watchdog continues to deny it is hindering integration deals.

The JFTC does not approve deals that would negatively impact customers, Akinori Yamada, secretary-general of the fair trade watchdog, stressed at a news conference on Wednesday.

Yamada's comments came as earnings deteriorate at regional banks due to declining rural populations and the Bank of Japan's negative interest rate policy. The slow pace at which the JFTC oversees mergers is irritating both regional banks and the Financial Services Agency.

The JFTC examines mergers to ensure that customers will be provided adequate services, competition is maintained, and other matters are properly addressed, according to a document Yamada handed out.

The JFTC rarely comments on cases under investigation, and distributing handouts is even rarer. Its news conferences are usually brief 10-minute affairs, but Wednesday's went for about an hour.

Customer care

"Consolidation for whom?" Yamada asked, noting that the JFTC considers how bank integration affects customer convenience. Remarking on a policy statement released by the FSA in November that favored mergers, Yamada noted that there are options other than consolidation available to regional banks. "There are diverse ways to become more competitive," he said.

Referring to the planned merger between the Fukuoka-based Fukuoka Financial Group, parent of Shinwa Bank, and Eighteenth Bank, the largest bank in Nagasaki Prefecture, Yamada called for the two banks to think of other options, if the deal would inconvenience customers.

Yamada made the unusual comments possibly to refute criticisms that the JFTC is hindering consolidation of regional banks, saying the JFTC had blocked none of the 14 regional bank mergers over the past decade. 

The secretary-general added that the U.S. and other countries have adopted criteria similar to the JFTC's for examining mergers.

The JFTC categorizes regional bank mergers into roughly three types: deals between smaller banks in big cities, like the merger between Yachiyo Bank and Tokyo Tomin Bank; broad-area alliances, such as the one between Kagoshima Bank and Higo Bank; and consolidation of large, strong banks, such as the accord planned by the two aforementioned Nagasaki banks.

It is the third type that the JFTC scrutinizes most closely, like a deal between Daishi Bank and Hokuetsu Bank. The two Niigata Prefecture banks postponed merger for half a year for the JFTC to finish its review.

But Niigata is different from Nagasaki, where the banking sector is nearing the end of its shake-up, a senior JFTC official said.

Niigata has attracted regional banks and other financial institutions from Yamagata and Nagano prefectures and is home to nearly 10 credit associations. Owing to the adequate levels of competition in the financial sector there, the JFTC is assuming that the Daishi-Hokuetsu deal will meet with its approval, said persons familiar with the matter.

Clock ticking

The November FSA policy statement revealed the agency's favorable stance on regional mergers, noting that management integration is an option needed to maintain financial institutions that are able to exercise healthy and proper intermediation functions.

But as the sense of crisis grows, both the FSA and banks think it is time for draconian measures while banks are still financially viable.

"The JFTC does not consider regional banks' tough earnings. It only imposes conditions for competition," said an executive at a regional bank in Japan's south-central Kansai area.

Regional banks feel that even if interest rates rise due to mergers, a competitive environment will still exist because rival institutions will invade their markets.

In a nod to the JFTC, the FSA stressed the importance of merger reviews and the need for competition. Analysts felt the statement exposed the agency's concern over the Nagasaki merger, since it rarely mentions 'competition.' 

The BOJ is also weighing, seemingly on the side of the FSA. During a speech last month, BOJ Deputy Gov. Hiroshi Nakaso said consolidation of regional banks is "effective in enhancing the stability and efficiency of the entire financial system." 

But stabilizing the financial system as rural populations shrink will take more than policy statements and mergers. All parties concerned should rethink their positions and desired outcomes. 

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