Japan Lenders Want to Work With Post Bank on One Condition

Japanese regional banks, which face increased competition from Japan Post Bank Co. as it prepares for an initial public offering, are willing to do business with the state-owned company -- on one condition.

A ruling party proposal to raise the 10 million yen ($81,000) cap on how much money each depositor can hold at Japan Post Bank must be withdrawn, Tatsumaro Terazawa, chairman of the Regional Banks Association of Japan, said in an interview.

“We won’t even be sitting down at the table while this talk about the deposit limit continues,” said Terazawa, 68, who is also president of Bank of Yokohama Ltd.

Raising the cap could drain savings from private lenders into an institution that already holds more deposits than any other in the nation. Japan Post Bank is also seeking to start offering credit such as home loans, vying with regional lenders that are facing a profit squeeze from low interest rates and declining rural communities.

“Lifting the limit would spur competition for deposits,” said Naoko Nemoto, an analyst at Standard & Poor’s in Tokyo. If the next step were to allow Japan Post Bank to start businesses such as housing loans, the impact on regional bank earnings would be “massive,” she said.

Local banks could use the postal giant’s national network as agency branches for bank services, expanding on existing cooperation on ATMs, Terazawa said in the July 16 interview. That would rejuvenate regions by delivering services in areas the lenders don’t cover, while generating fees for Japan Post Bank, he said.

State Backing

A Liberal Democratic Party panel proposed increasing the deposit cap at the postal giant to 20 million yen per customer by September and 30 million yen within another two years, before eventually scrapping the limit altogether. The plan is subject to approval from the party and government ministries.

Japan Post Bank will have an unfair advantage so long as it has implicit state backing, Terazawa said. He said the company must be fully privatized and brought down to a more appropriate size, adding that any plan for it to enter the loan business would be “unfathomable.”

Taizo Nishimuro, president of parent Japan Post Holdings Co., said Wednesday that he doesn’t expect a conclusion on the deposit cap proposal anytime soon, and forming alliances with other financial institutions is more pressing. There hasn’t been any progress on the bank’s application made in 2012 to start offering mortgages and corporate loans, he said at a news briefing.

Teaming Up

Japan Post is teaming up with Sumitomo Mitsui Trust Holdings Inc. and Nomura Holdings Inc. to form an asset-management venture, the companies said Wednesday. The new firm will develop investment products to sell to customers of the postal bank.

Business alliances are an effective tool for lenders to supplement functions and services, Terazawa said.

“I think we will see more of these going forward,” he said. Mergers are also an option for local banks, said Terazawa, whose company will combine with Higashi-Nippon Bank Ltd. in April 2016.

An industry group of 86 bank stocks on the Topix Index has climbed 27 percent this year, more than the benchmark’s 18 percent advance.

Regional banks need to be resilient to cope with low interest rates, Terazawa said, declining to give a prediction for when they may rise.

“If the government’s efforts to fight deflation succeed and stable interest rates return, things will be different for regional lenders,” he said.

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