TOKYO -- Japanese Chief Cabinet Secretary Yoshihide Suga, who this week announced his bid for the presidency of the ruling Liberal Democratic Party, is keen to consolidate the country's regional banks, now suffering from low margins due to the Bank of Japan's ultraloose monetary policy.
Asked about the negative effect of the BOJ's yearslong aggressiveness, Suga on Wednesday talked about a future in which there would be "too many regional banks."
Strengthening the competitiveness of regional banks and revitalizing regional economies are two of Suga's political priorities.
"Regional banks will need to push ahead with reforms on their own to strengthen their management bases and contribute to their own communities," Suga told reporters on Thursday. "It will be up to each bank's business judgment, but reorganization could also be an option."
Suga referred to a special law that exempts merging regional banks from antitrust statutes. "I want regional banks to make the best use of the special law to strengthen their management bases," he said.
Suga, a confidant of current Prime Minister Shinzo Abe, hails from impoverished Akita Prefecture, in the northern reaches of Japan's main Honshu Island. "Regional banks have to change," Suga has told his aides, citing the fact that the smaller cities they serve are suffering from declining populations and a lack of business successors.
Banks in these areas have few clients to lend to. In fact, there are few rural businesses that can capitalize on the swelling money supply resulting from the BOJ's massive easing.
Japan has tried to stimulate rural economies by encouraging more foreign tourists to visit the countryside and by pushing agricultural exports.
But the BOJ's ultraloose money policies have hamstrung cash-strapped small and mid-size regional lenders.
A reorganization is now seen as a potential way to restore these banks' profit-earning capabilities.
As chief cabinet secretary, Suga has spearheaded efforts to rejuvenate regional banks, including the antitrust exemption, which applies to mergers of regional banks in the same prefecture. The special law, which was passed in May, takes effect later this year.
Mergers of regional banks in the same prefecture could mean the government giving a silent nod to an oligopoly.
Suga coordinated between the Fair Trade Commission, which governs the antimonopoly law, and the Financial Services Agency.
The special law stems from a planned merger in 2018 of Fukuoka Financial Group, the parent of Nagasaki-based Shinwa Bank, and Eighteenth Bank. The plan could not obtain approval from antitrust authorities.
Prime Minister Abe's team had hoped the merger would start a trend.
Suga also has vowed to provide human resources to small and mid-size companies suffering from the worsening business environment. The pledge came in July, when related policies were compiled, with one calling for a list of professionals at big banks who, because of the rise of fintech and other new businesses, have been made redundant. The policy goes on to call for shifting these professionals to rural areas.
During the LDP's 1998 presidential election, when Japan's big banks were suffering from a financial hangover left over from the bubble economy of the late 1980s, Suga, now 71, backed former Chief Cabinet Secretary Seiroku Kajiyama, who advocated a "hard landing" policy that would allow the large lenders to fail.
Abe last week announced his intention to step down as prime minister and LDP president. Whoever succeeds him as LDP president will be one step away from the prime minister's job.
