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ANALYSIS-In Nagasaki, bank consolidation may expose flaws in economic rescue plans

ANALYSIS-In Nagasaki, bank consolidation may expose flaws in economic rescue plans

By Leika Kihara and Takahiko Wada

NAGASAKI, Japan, Oct 8 (Reuters)Once seen as a model for consolidation, the merger of two regional banks in Nagasaki may expose flaws in Prime Minister Yoshihide Suga’s plan to revitalise regional economies by creating stronger lenders.

In Nagasaki’s distant past, the city was a stronghold of trade and finance. These days, Japan’s larger ports soak up all the business, and local banks, crippled by a stagnant economy and shrinking customer base, scrap for profits.

That made the Oct. 1 merger of Eighteenth Bank and Shinwa Bank a potential test case for turning around the city’s fortunes. The new institution, formed after a lengthy battle between the antitrust watchdog and financial regulators, has a roughly 70% share in the southern Japanese prefecture.

The merger has the blessing of Suga, who has emphasised the need for regional banks to consolidate to survive dwindling local economies and years of ultra-low interest rates. Japan’s banking regulator has held up the deal as a model for streamlining an overcrowded regional banking sector.

But the community isn’t rejoicing.

Some in Nagasaki fret the merged bank, which would belong to a financial group based in Fukuoka prefecture, may shift its focus away from local borrowers.

“I’m worried the new bank may pay less attention to Nagasaki,” said Ryuji Kuon, owner of a boat tour firm. “There’s no clear explanation on how the merger would help us.”

There is also concern a lack of competition would give the new bank, Juhachi-Shinwa, the power to impose higher rates or unfavourable conditions on small borrowers.

“In running a business, it’s always good to get advice from multiple banks,” said Tadayuki Yasui, owner of a pizza shop. “We won’t have that opportunity anymore.”

Juhachi-Shinwa says it will ensure there is no disadvantage

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