The Bank of Yokohama and Chiba Bank, two of the country’s top regional banks, said Wednesday they have agreed to a business tie-up in a move that could trigger further realignment in the industry.
The move by the biggest and third-biggest regional lenders by assets comes as domestic banks have seen their profitability squeezed by the Bank of Japan’s ultralow interest rate policy.
The two banks signed a letter of intent, aiming to launch the partnership within the year in areas such as the sharing of information on mergers and acquisitions, and business successions.
A merger between the two is not currently being planned, Chiba Bank President Hidetoshi Sakuma said at a news conference.
Sakuma also indicated the partnership would expand in the future to include the Saitama Prefecture-based Musashino Bank, which already has a tie-up with Chiba Bank.
“I want to expand our customer base by working hard to partner with banks in Tokyo as well,” he said.
The Bank of Yokohama is a subsidiary of Concordia Financial Group, which also involves Higashi-Nippon Bank. But the Tokyo-based lender has no plans to join the partnership with Chiba Bank.
Years of near-zero interest rates have made traditional banking barely profitable in the country, where regional lenders also have to contend with dwindling populations. Market watchers have long called for consolidation as a primary means of growth — and even survival.
In April, the BOJ estimated that around 60 percent of regional banks in the country will be operating at a net loss in 10 years.
“Progression in aging, prolonged negative interest rates, and different industries’ entry have largely changed our business environment,” Sakuma told reporters.
“When I met with Mr. Sakuma alone in March, we talked about the possibility of this partnership,” said Bank of Yokohama President Yasuyoshi Oya. “That was the start of discussion.”
Bank of Yokohama has ¥16.8 trillion ($154.34 billion) in assets compared to Chiba Bank’s ¥14.9 trillion.
The country’s banking sector is dominated by Mitsubishi UFJ Financial Group Inc, Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc.