Kiyo Bank and Wakayama Bank yesterday said they had agreed to merge, as regional banks take steps to cope with the abolition next month of the full government guarantee on bank deposits. After April 1, the government will guarantee only 10 mln yen per account in the event a bank fails.
Major concern is focused on how that change affects Japan's regional banks, many of which have not made the sort of progress achieved by the nation's four so-called megabanks -- those with branches nationwide -- over recent years in slashing their bad-loan ratios.
Bank of Japan governor Toshihiko Fukui said Wednesday that he is confident the abolition of the blanket government bank deposit guarantee will not cause any serious problems.
"As the Japanese financial system has improved markedly, I do not think that we should worry about what will emerge after the introduction of limited deposit insurance," the central bank chief said.
"But it is wrong to think," Fukui warned, "that we are going back to a completely safe world where not a single bank collapses."
The introduction of limited deposit insurance is expected to trigger a wave of mergers among regional banks, similar to the consolidation over the past decade that reduced the number of Japanese banks with nationwide branch networks from 10, to four now -- and just three by next October.
Yamaguchi Bank and Momiji Holdings announced virtually no details of their intended business and capital alliance. They said only that Yamaguchi Bank will buy an undisclosed number of new shares to be issued by Momiji Holdings, and the business alliance will involve some sort of integration of operations.
"We will decide details through future negotiations," the companies said in a one-page statement issued through the Tokyo Stock Exchange, where both companies are listed on the First Section.
The Nihon Keizai Shimbun reported, citing unnamed sources close to the deal, that the two banks will integrate their operations, possibly by next year, creating the fifth-largest regional banking group in Japan.
Yamaguchi Bank and Momiji Bank held a combined 6.4 trln yen in deposits as of September 30, 2004, according to the business daily.
The Nikkei said that in the run-up to the newest integration, Yamaguchi Bank will become the top shareholder in Momiji Holdings, possibly within the next six months, by purchasing around 50 bln yen worth of new shares, giving it just over a one-third stake.
Momiji Holdings will raise 80-90 bln yen in fresh funds, including 30-40 bln yen from the issuance of preferred shares and subordinated bonds to beef up its capital base, the report said.
Some of that money will be used to repay the 40 bln yen in public funds that were injected in 1999 into the former Hiroshima-Sogo Bank, which merged with Setouchi Bank to create Momiji Bank in May 2004, it said.
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