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Mitsubishi Tokyo Financial Group Inc. and UFJ Holdings Inc. said Thursday they will enter a business and capital tieup with Norinchukin Bank to tap retail banking for farmers — a large but closed market considered potentially lucrative.

An accord on the alliance was reached the same day, ahead of the Oct. 1 merger of Mitsubishi Tokyo Financial Group and UFJ Holdings into Mitsubishi UFJ Financial Group Inc.

The accord also involves Nippon Shinpan Co., issuer of NICOS brand credit cards under the wing of the UFJ group, which will merge with UFJ Card Co. into UFJ NICOS Co. Under the agreement, due to be signed by the end of December, Norinchukin Bank will contribute 100 billion yen each to MUFG and UFJ NICOS.

Details of the capital tieups have yet to be worked out, said the parties involved in the deal.

Banks are becoming more interested in financing farming operations, as they see the country’s long-protected agricultural industry as a market with great growth potential.

Amid the aging of farmers and a dearth of successors, the government has taken some steps in recent years to let financial newcomers join the market to help invigorate the industry.

But agricultural finance has long been dominated by the politically powerful Japan Agricultural Cooperatives, whose financial entity is Norinchukin Bank.

“If you want to enter into farmers’ retail banking, you need expertise. And Norinchukin is the one that has it,” said Yukio Shibuya, a senior researcher in charge of agriculture business at Mitsubishi Research Institute.

The tieup would expand the new Mitsubishi UFJ Financial network, as megabanks typically have a good retailing presence in big cities but few branches in rural areas.

The JA group accounted for almost 90 percent of Japan’s overall agricultural financing, worth about 21 trillion, yen as of March 2004. Commercial banks accounted for a mere 3.9 percent.

“To Norinchukin, this is a move to survive in an era of harsh competition,” Shibuya said.

The agricultural financier aims to expand its customer range, as regional banks move into the farm finance market.

Norinchukin is under heavy pressure to weather the competition, as JA could be the next institution on Prime Minister Junichiro Koizumi reform agenda. The government’s deregulation panel has already announced that it will discuss JA reform in the future.

So far, as many as 62 financial institutions — most of which are regional banks — have tied up with the Agriculture Forestry and Fisheries Finance Corp., a government-affiliated financial entity, in efforts to get into the attractive agricultural market.

Earlier this month, Sumitomo Mitsui Banking Corp. held a trade show in cooperation with the semigovernmental body, seeking a chance to extend loans to farming businesses. In May, SMBC launched the collateral-free V Fund Agri loan, the first of its kind for the farm industry.

Late last month, Tokyo Star Bank signed a contract to securitize the future cash flow of a unique “shiso,” or perilla, farm in Shizuoka Prefecture and to provide 400 million yen to the farmer.

Thursday’s accord also envisages MUFG helping Norinchukin Bank introduce new automated teller machines that will use multipurpose integrated-circuit cards.

Among other business tieups, UFJ NICOS will provide Norinchukin Bank, which caters to agricultural, forestry and fisheries cooperatives, with infrastructure and knowhow related to the credit card business.

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