Business / Corporate

Regional bank in Japan battles ultralow interest rates with wine bar and sea urchins

by Leika Kihara and Takahiko Wada

Reuters

As years of near-zero interest rates in Japan make traditional lending barely profitable, one regional bank is seeking to drum up business through less conventional enterprises, from opening wine bars to helping fishermen farm sea urchins.

The new approach comes as regulators cautiously loosen the rules to let banks venture into other businesses to help offset the hit to their net interest income from the Bank of Japan’s ultraloose monetary policy.

For Takeshi Yoshimura, the 59-year-old president of Yamaguchi Financial Group, the effects of the BOJ’s zero interest rates are compounded by other challenges his region faces, notably a dwindling population and an exodus of firms to bigger cities like Tokyo.

That is why he is prodding young employees to come up with ideas to make better use of the bank’s roughly 280 branch offices spread across Yamaguchi and Hiroshima, the prefectures where Yamaguchi Financial mainly operates.

One idea was to rent out space to a wine bar at a branch in Yuya, a sleepy town with hot springs where such businesses aren’t common.

“Yuya is a nice tourist destination, but there are very few places to drink and dine,” Yoshimura said. “Visitors to the bar can open a bank account or get consulting services from one of our bankers,” he said on Tuesday. The bar opens in July.

The goal is to transform all other branches into community hubs of various kinds, such as cafes or child care centers, that break the stereotype of traditional banking.

“Closing branches would cut costs. But we’re not doing that because we want to maintain a place where we have face-to-face interaction with our customers,” he said.

Years of heavy money printing by the BOJ have pushed borrowing costs nearly to zero, benefiting borrowers but hurting regional banks that are already suffering from a dwindling population and a lack of fund demand.

Yamaguchi Financial, which ranks 11th among Japan’s 78 listed regional banks in total assets, is no exception. Its consolidated net profit in the year ended in March fell 30 percent from a year earlier. Profits from core lending operations were down 26 percent.

Nearly 60 percent of regional banks could suffer net losses a decade from now if corporate borrowing keeps falling at the current trend, the BOJ warned in a report in April.

Aside from utilizing its branches, Yamaguchi Financial is seeking to boost the region’s fishery industry. After local fishermen complained they were catching fewer natural sea urchins, its bankers created a network of local academics and researchers to experiment with ways to farm the creatures.

If farming proves successful, the bank would provide loans to build plants, market the urchins across Japan and possibly open a restaurant with a view of the sea so visitors can try the delicacy over a glass of wine, Yoshimura said.

Yamaguchi Financial also helps local food producers brand and market goods ranging from honey and beef to sake. The group hopes to make such nonfinancial businesses profitable in the next three to five years, which would in turn drive fresh business opportunities for the bank.

“Banking is still important. But we also need to come up with other business models to prepare for the day when banks would be allowed to do many other things,” he said.

“One day, people might barely remember the day we were a bank. That’s fine.”

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