Yomiuri: Japan's Regional Banks Move to Merge Across Prefectures

By Miyu Okada and Kohei Nakashima / Yomiuri Shimbun Staff Writers

Japan's regional banks are moving forward with cross-prefecture mergers. With regional economies shrinking due to population decline and a drop in deposits considered inevitable, the mergers are aimed at securing new business opportunities by expanding business reach. The Financial Services Agency, which stresses the role of regional banks as financial infrastructure in regional economies, is also supporting these "cross-prefecture reorganizations."

Seeking synergy

"By applying San ju San's strength — its advanced financial expertise — in Aichi Prefecture, where Aichi (Financial Group Inc.) has built its base, we will be able to help our customers solve their challenges even more efficiently," said Gotaro Michihiro, president of San ju San Financial Group Inc., at a press conference in Nagoya held in May by the two companies after they agreed on a merger. San ju San Financial is based in the neighboring prefecture of Mie.

Under the agreement, a holding company will be set up in April 2027, and this will control the companies' subsidiaries, Aichi Bank Ltd. and San ju San Bank Ltd. The two groups aim to expand their businesses by combining Aichi Financial's customer base in Aichi Prefecture, where there is a thriving manufacturing sector, with San ju San Financial's strengths, such as its advanced lending expertise.

Japan is seeing a wave of mergers across prefectures.

In March, Shizuoka Financial Group Inc. and the Bank of Nagoya Ltd. announced they will merge operations, aiming to complete the move by April 2028. The resulting firm will have the fourth most assets among regional bank groups in Japan.

Gunma Bank Ltd. and Niigata-based Daishi Hokuetsu Financial Group Inc. have also announced that they plan to merge their operations by April 2027. In the Tohoku region, two banks under the umbrella of Fidea Holdings Co. — Shonai Bank Ltd., based in Yamagata Prefecture, and Hokuto Bank Ltd., based in Akita Prefecture — plan to merge in January 2027 to establish Fidea Bank Ltd., which will be the first cross-prefecture regional bank in the region.

Besides these plans, there is at least one more merger between regional banks in the works.

Crisis mode

The wave of mergers is being driven by the likelihood that deposits and loans will drop off as regional economies contract due to population decline.

According to the FSA, as of the end of September 2025, among about 100 regional banks nationwide, 37 saw retail deposits shrink from a year earlier. The decline in deposits also affects lending activities.

In regions where the population is declining especially quickly, such as Shikoku and Tohoku, "lending is expected to decrease by 10% by 2050," said Takahisa Funaki of Mitsubishi Research Institute Inc.

With interest rates back in normal territory and internet banks on the rise, banks have been competing more actively for deposits, which provide the funds they need for lending. Though many regional banks are posting record profits, buoyed by rising interest rates, there is a strong sense of crisis. "As long as the population continues to decline, a drop in deposits is inevitable if things continue as they are," said an executive at a major regional bank.

Mergers across prefectures are expected to gain steam as they allow banks to gain a steppingstone into other regions while retaining their brands, branches and existing customers in their home market.

With mergers in the same prefecture, it can be difficult to acquire new customers, as banks compete for market share in the same market.

Expanding the customer base into other regions can open up the potential for new business opportunities, such as for bringing in new deposits and for services that the bank excels in its home region.

"It also makes it easier for two banks to coordinate on large loan deals when these arise in one of their areas," said an industry insider. In new areas such as support for corporate mergers and acquisitions and digitalization, regional economies can also expect to see benefits, such as advanced services from one of the banks.

Unclear impact

However, it is unclear how much these mergers will benefit banks. In cross-prefecture mergers, the banks' branches have little overlap, so there will likely be little cost-saving from branch consolidation. For small regional banks, there may be no one for them to merge with, and they could be left behind as other banks consolidate.

"Cross-prefecture mergers are a viable option," said Hideo Oshima, a senior economist at the Japan Research Institute Ltd. "But rather than merely cutting costs, it is crucial to adopt an offensive strategy that expands the customer base and business areas to increase revenue opportunities."

Govt to expand grants

For its part, the government is calling on regional financial institutions to continue to provide capital and other assistance in their respective regions. In April, the law on measures for strengthening financial functions was revised. The government is set to decide on measures such as offering more grant money for mergers. The aim is for these institutions to secure profits more efficiently through the synergies created by mergers, and to support regional economies into the future.

Last December, the FSA formulated the Regional Financial Power Enhancement Plan. Based on the revised law on financial functions, the government will raise the upper limit on grants provided to regional banks undertaking mergers from 3 billion yen. According to the plan, the grant ceiling will be set at 5 billion yen for mergers between regional banks, and 7.5 billion yen for mergers between regional banks and other regional financial institutions including shinkin banks and credit unions. In addition, up to 1.5 billion yen will be provided so that IT systems can be shared among multiple financial institutions.

The government's support for consolidation in general — not just mergers across prefectural lines — stems from a fear that if regional banks become unsustainable, lending to local businesses will stagnate and regional economies will worsen. Should any single bank fail, it could have a negative impact on the entire financial system.

"Population decline will erode the financial strength of regional financial institutions over time," a senior FSA official said. "This is the time, while interest rates are favorable, for considering future business models."

In the past, the central government held a strong preference for "one bank per prefecture," and sought to consolidate banks to some extent within each prefecture to stabilize the regional economy. Another senior FSA official said, "If cross-prefecture operations are appropriate from the perspective of supporting the region in the medium to long term, there is no issue with this as a management decision by each bank," suggesting that cross-prefecture mergers could spread further.

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This article is from The Yomiuri Shimbun. Neither Dow Jones Newswires, MarketWatch, Barron's nor The Wall Street Journal were involved in the creation of this content.

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