(Bloomberg) -- Japanese banks expect the government’s efforts to deregulate and digitize the economy will gain momentum under the new administration led by Prime Minister Yoshihide Suga.
“I have high expectations for the government’s digitalization drive,” Kanetsugu Mike, chairman of the Japanese Bankers Association, told reporters on Thursday. A regulatory overhaul will give households more impetus to invest their savings, he added.
Suga, who took office this week, has vowed to continue predecessor Shinzo Abe’s economic program of fiscal spending, monetary easing and restructuring. Already, he has created a new ministerial portfolio for digital reform, after Japan’s paper-reliant bureaucracy was criticized for its slow response during the Covid-19 crisis.
“The coronavirus pandemic has made it clear how far we are lagging behind,” Mike said. Japanese banks are having their own struggles with going digital in an industry where physical passbooks and personal stamps remain the norm.
Mike said Suga’s digital initiative is a boost to what banks have been pleading municipal governments to do for years. Local authorities have been slow to change paper-based processes for tax payments, leaving a burden on bank workers to do it manually on their behalf.
Bank Mergers
Suga has also said that Japan has too many regional banks, spurring speculation that he may push for faster consolidation in the sector. The nation’s roughly 100 regional lenders play a key role in local economies but have been suffering diminishing returns, hit by the rapidly aging population, rock-bottom interest rates and now the pandemic.
“The business environment is tough,” said Mike, who is chief executive officer of MUFG Bank Ltd., the main lending unit of Japan’s biggest financial group. “In such conditions, as Prime Minister Suga pointed out, banks should discuss strategic options including mergers and carry them out.”
The head of a separate lobby group representing regional banks said earlier this week that while the sector is crowded, there is room for innovation.
“In terms of traditional deposit taking and lending business, we can say we’re overbanked,” Yasuyoshi Oya, chairman of the Regional Banks Association of Japan, said Wednesday. “But if we can offer service beyond plain vanilla loans and transform our business model,” then the industry can resolve overcapacity issues, he said.
Japan’s financial regulator has questioned the long-term sustainability of local lenders’ business models and is urging them to come up with viable measures, with mergers among the options. Stocks of small regional banks surged in the days following Suga’s remarks earlier this month, as investors see them as likely acquisition targets.
Like Mike, Oya said consolidation remains an option for banks, once they determine the merits of such an undertaking. “It takes time, and that is the biggest bottleneck,” he said.
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