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SBI seeks to be ‘white knight’ for Japan’s regional banks

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Via Financial Times

The president of SBI Holdings, Japan’s biggest online brokerage, has declared himself the “white knight” rescuer of the country’s regional banks — a sector whose chronic troubles are building both domestic and global financial stability risk.

Yoshitaka Kitao’s comments come as Japan’s financial regulator has begun planning the sector’s biggest shake-up since the 1990s with a series of reforms that would allow regional banks to participate more broadly in their surrounding economies.

Mr Kitao, who is known for his outspoken condemnation of Japan’s traditional financial industry and the unfairness of many of its conventions, said that desperate regional lenders who might once have dismissed an approach from SBI now had “no choice” but to talk to him as he laid out offers of partnership. 

Local banks that opt to partner SBI, he said, would benefit from its superior technology while becoming, in effect, conduits through which their customer bases could access SBI’s much larger range of financial products and services.

Within the past six months, SBI has announced capital tie-ups with three ailing local lenders — Shimane Bank and Fukushima Bank in late 2019, and Chikuho Bank last week. Those add, said Mr Kitao, to about 40 relationships his company has formed with regional banks.

“Where we see business [opportunity] is where there is a problem. What they need is a weapon and that is technology. Technology has been missing for such a long time from regional banks, and we have it,” said Mr Kitao, whose company has built a 40 per cent share of Japan’s online share-trading market.

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His comments, which follow warnings from regulators and analysts about zombie loans and under-reported credit costs across the regional banking sector, come as Japan is poised to enter its fifth year under the Bank of Japan’s negative interest rate policy. That regime, when combined with demographic decline and the hollowing of regional economies, has hit incomes across the financial sector and pushed many to place vast bets on risky property loans or overseas derivatives. 

The BoJ’s actions, said Mr Kitao, had forced regional bank share prices lower and made his strategy of injecting capital into stumbling local lenders “extremely cheap”. 

“If we can invest at that price, we can change them with technology and once they can increase their profitability I think their stock prices will go up . . . we are the kind of white knight in this,” Mr Kitao said.

Japan’s roughly 100 regional banks, who hold more than $3tn in assets and are larger than the entire Italian banking system, have led a push for exotic overseas investment that has made Japan the world’s largest net foreign lender. Certain markets, including US collateralised loan obligations, are dominated by Japanese financial institutions, and some analysts have sounded warnings over the possible effect on those markets should the flows from Japan suddenly peter out.

Concerns over the health of Japan’s regional banks have prompted a number of suggested solutions. In recent years, the FSA has attempted to convince some of the most bruised local lenders to merge with other banks. More recently, the regulator has outlined plans that would, for the first time since the second world war, allow regional banks to engage in activities such as management consultancy that fall outside their core businesses. 

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Despite his optimism, Mr Kitao admitted that even though his company had challenged the dominance of traditional brokers such as Nomura and Daiwa, it had still not effected a wholesale change in individual Japanese people’s attitudes to risk.

“In the US, from primary school they are told that if you have extra money, here is how to invest it. In Japan, everybody learns that if you have any extra money, it should be in bank deposits. Talking about money is a bad thing in Japan,” he said.

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