Japan’s Rural Financial Firms Should Combine, LDP Lawmaker Says

Japan’s regional financial institutions should consolidate across geographical boundaries to help revive the economy, ruling Liberal Democratic Party lawmaker Yasuhisa Shiozaki said.

To strengthen rural areas, the nation should give first priority to financial restructuring, said Shiozaki, 62, who is vice chairman of the LDP’s Policy Research Council. “We need a financial sector that can support the vitality of industries and companies,” he said an interview on July 23.

Japan has more than 500 local financial institutions, including 64 so-called first-tier regional banks and 41 smaller second-tier lenders, the Financial Services Agency’s website shows. Prime Minister Shinzo Abe, whose government cemented control of parliament with an upper-house election victory on July 21, is expected to present a legislative growth strategy later this year to accompany monetary and fiscal stimulus.

“I don’t understand why regional financial institutions have to stay within their own prefectures at a time when the economy expands beyond geographical boundaries,” said Shiozaki. “They should branch out, or they simply won’t be able to catch up with the real economy.”

Japan has made little headway on the realignment of local financial institutions in part because shareholders have been silent about their business management, he said.

Fukuoka Financial

Shiozaki, a former chief cabinet secretary, said Fukuoka Financial Group Inc. (8354) is an example of a successful merger of regional banks. He declined to identify potential future tie-ups between local lenders.

Fukuoka Financial, Japan’s second-biggest regional bank by assets, was created in April 2007 after Bank of Fukuoka Ltd. paid 90 billion yen ($900 million) to buy Kumamoto Family Bank Ltd. The group, based on the southern island of Kyushu, agreed a month later to purchase Shinwa Bank Ltd. for 76 billion yen.

“Restructuring and consolidation is an option for regional banks,” Fukuoka Financial President Masaaki Tani said in an interview on July 18. “But at the end of the day, that’s a managerial decision for individual banks and it doesn’t make sense to let the government take the lead.”

Tani is also chairman of Japan’s main regional bank lobby group.

To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Takako Taniguchi in Tokyo at ttaniguchi4@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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