Regional banks in Japan should promote reform to overcome difficulties instead of relying on outside help, Financial Services Agency Commissioner Toshihide Endo said in a recent interview.

“It is important (for regional banks) to come up themselves with corporate philosophies that will make their local regions rely on them, leading to the establishment of a sustainable business,” Endo said.

“If (regional banks) seriously think about business projects that create relationships of trust over the long term, it will be possible to secure margins,” he said.

The commissioner said that regional banks are now acting as if they are “seeking salvation,” waiting for external circumstances to improve or for regulators to give instructions for reform.

Endo’s comments come at a time when regional banks are suffering from the effects of falling populations and ultralow interest rates.

He gave a stern warning to banks focusing on sales of investment trust products and foreign currency-denominated insurance products with high margins.

“At the end of the day, clients will feel betrayed,” Endo said. “It is the same as the discussions” on inappropriate sales practices involving Japan Post Insurance Co., he said.

Endo welcomed moves among regional banks to form partnerships, such as those between Chiba Bank and Bank of Yokohama, a unit of Concordia Financial Group Ltd., and between Fukui Bank and Fukuho Bank.

“This should be highly evaluated,” he said, but added that the partnerships “will only be accepted if they bring positive change to local economies and clients.”

On moves by Shimane Bank and online financial services firm SBI Holdings Inc. to form a capital alliance with the aim of creating a mega-bank made up of a union of regional banks, the commissioner said, “I want them, as private (financial institutions), to take up this challenge.”

He suggested that such tie-ups may help banks’ efforts to reduce operational costs and increase investment products.

Endo was dismissive of calls by some to raise banking charges at regional banks amid speculation that the Bank of Japan will cut interest rates deeper into negative territory.

“Taking charges for the sake of improving profit, without changing services, will not be accepted by clients,” he said. Adding value to existing services, such as through increased convenience, is imperative, he said.

Endo criticized the corporate governance regime of Japan Post Holdings Co., the parent of Japan Post Insurance, over the inappropriate sales practices, regarding which the agency is conducting on-site investigations.

“It is an organizational issue that can’t be blamed on the morals of post office workers,” he said.

“There can’t be an automatic resumption,” he said of Japan Post’s plan to resume sales of insurance products as soon as January. “There is considerable accountability to fulfill.”


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