Japanese Regional Banks Higo, Kagoshima Agree to Merge

Kagoshima Bank Ltd. and Higo Bank Ltd., Japanese regional lenders, agreed to merge next year to tackle the intensifying competition, shrinking population and economic stagnation afflicting the industry.

The banks, both based on the southern island of Kyushu, plan to establish a joint holding company on Oct. 1 next year, they said in a statement to the Tokyo Stock Exchange today. They will decide on the merger ratio by March.

Japanese officials have been urging local banks to consider combining to shore up profits that are also weighed down by falling interest rates. Bank of Yokohama Ltd., the second-largest regional lender by assets, said last week that it’s considering merging with Tokyo-based Higashi-Nippon Bank Ltd.

“We understand that banks need to put extra effort into dealing with the population decline and changes in competition and the environment,” the Kyushu banks said. “Building a solid management base to further boost our presence in Kyushu is the common challenge we face so that we can make a lasting contribution to the revitalization of local communities.”

Higo Bank shares closed 0.3 percent lower at 649 yen in Tokyo today, after last week reaching the highest price since May 2013 on news of the merger talks. Kagoshima Bank rose 1.6 percent to 743 yen. The Topix Banks index gained 0.2 percent.

The lenders will be delisted on Sept. 28 next year and relist under the holding company on Oct. 1, according to the statement. Kagoshima Bank, based in Kagoshima city, and Kumamoto-based Higo Bank have 8.5 trillion yen ($74 billion) in combined assets, data compiled by Bloomberg show, meaning a merger would put them among the top 10 regional lenders.

Higo Bank hired Mizuho Securities Co. as its financial adviser on the transaction, spokesman Kenshi Nishimoto said by phone today. Daiwa Securities Group Inc. is advising Kagoshima Bank, said Shinichi Yamakata, a spokesman for the lender.

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