A bleak forecast by the Bank of Japan that nearly 60 percent of the nation’s regional banks will suffer net losses 10 years from now serves to remind us of the tough prospects facing these financial institutions. They will have to overcome a dwindling client base brought on by the accelerating population decline in many regions across Japan and the tightening profitability of their lending business.

The worsening performance of regional banks bodes ill for the companies and other borrowers that sustain regional economies. The BOJ’s report cites mergers between struggling banks as an option for their survival, but that alone won’t resolve the problems biting into their profitability. Leaders at these banks need to redouble their efforts to explore a new, sustainable model so they can stay open for business.

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