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Prime Minister Yoshida Suga said Thursday that regional banks should not be forced by the government to integrate their operations with others.

Referring to his government’s efforts to promote regional bank realignments, Suga said that the government “has just created an environment” to make it easier for regional lenders to make moves for industry realignments.

He made the remarks in a speech at a gathering hosted by the Research Institute of Japan, a Jiji Press affiliate.

In September, when he declared his bid to run in the ruling Liberal Democratic Party leadership election to succeed former Prime Minister Shinzo Abe, Suga had said that “there are too many regional banks in Japan.”

With policy measures aimed at helping regional banks’ efforts to strengthen their business foundations now in place, Suga apparently shifted to a stance of respecting the independent initiatives of individual banks.

The Financial Services Agency plans to set up a subsidy program to facilitate realignments among regional banks. The Bank of Japan has decided to pay additional interest on current account deposits held at the central bank by regional banks that work to strengthen their earnings capacity through business integration or cost reductions.

“It’s my basic idea that Japan as a whole won’t be vibrant if local areas aren’t,” Suga said in the speech.

The prime minister stressed that regional banks are facing an increasingly tough business environment amid the falling population.

“We want them to become banks that support regional areas, by carrying out management reforms to create firm business foundations,” Suga said.

He also explained a special measures law that allows several regional banks in a prefecture to combine their operations. The law, which was enforced in November, grants exceptions to the antimonopoly law.

“I think it’s a good thing if two banks can enhance their management bases by becoming one,” Suga added.

On the change in Suga’s comments on regional banking industry realignments, an official from a regional bank in western Japan said, “We’ve finally come to share a common view. The (issue of) number had taken on a life of its own, although business strategy is of importance.”

But another industry official said that “there seems to be no change in his broad recognition” that industry realignments are needed.

Following Suga’s remark in September, moves to seek partnerships have gained momentum in the regional bank sector. Shizuoka Bank, whose main business area is Shizuoka Prefecture, and Yamanashi Chuo Bank, which offers services chiefly in neighboring Yamanashi Prefecture, have announced a comprehensive tie-up agreement.

Meanwhile, some remain cautious about such moves. “Problems we have aren’t something that can simply be solved though realignments,” the president of a regional bank in the Tohoku region said.

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