Japan’s regional banks face an ever-tightening business climate. Steep population declines in many parts of the country have eroded their customer base by reducing the loan demand by local companies in the markets they serve, while the ultralow interest rates under the Bank of Japan’s protracted monetary easing policy have cut their profitability by cutting the lending margins. For such financial institutions, merging or integrating operations with fellow regional banks is deemed a key step for survival.

Recent approval by the Fair Trade Commission for a plan to integrate the operations of two Kyushu-based banks, which had been put on hold for two years due to anti-monopoly concerns, should facilitate the banking sector's realignment through more such mergers. The case should also facilitate discussions for reviewing the competition policy in a shrinking market environment.

The Fukuoka Financial Group (FFG) and Eighteenth Bank reached a basic agreement in 2016 to integrate their management. But the FTC's screening of the plan took more than two years as concern was raised that Eighteenth Bank, the largest bank based in Nagasaki Prefecture, and the Sasebo-based Shinwa Bank under the FFG's wing, the second-largest, combined would create a financial institution with an alarmingly dominant share of the prefecture's lending market. In fact, the two banks put together would have commanded a 75 percent share of lending to local small and medium-size companies.