Japan's Banks Are Taking Hard Hits From The Global Economy
Friday, January 09, 2009SUSIE GHARIB: Japan escaped most of the sub-prime mortgage meltdown and its big banks are in better shape than financial institutions in the U.S. and Western Europe. But as Lucy Craft reports from Tokyo, the international economic slowdown has been disastrous for the country's traditional local banks.
LUCY CRAFT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The streets of Tokyo's financial district are a virtual embassy row of Japan's provincial banks with geographic names like Hokuriku, Iwate and Tohoku signifying the areas they serve, community banks are the backbone of small-town Japan. Japan's regional lenders are old-style relationship banks, closely intertwined with the main street companies they finance. But main streets under water these days and so are their bankers, says Fitch ratings analyst Reiko Toritani.
TRANSLATION OF: REIKO TORITANI, SR. DIRECTOR, FINANCIAL INSTNS., FITCH RATINGS: Their loan growth is flat. Bigger and more competitive banks are invading their turf. The total loan pie is shrinking. So their profits are tanking and that's why regional banks are suffering now.
CRAFT: Unlike Japan's handful of highly diversified and mammoth financial institutions, known as mega-banks, most local lenders are joined at the hip to depressed rural communities, explains Fujitsu research economist Martin Schulz.
MARTIN SCHULZ, SR. ECONOMIST, FUJITSU RESEARCH INSTITUTE: Japanese regions and countryside has never really restructured as a major city like Tokyo has or Osaka is currently doing, so it is basically the real economy which is hitting them. The government supports these banks. But they also support them by encourage them, giving more credit to the existing customers who do not have good prospects.
CRAFT: Until a few years ago, Japan's hinterland economies could count on a steady stream of pork barrel spending. But with public works down sharply, provincial towns, their populations aging and shrinking, are stagnant. Mortgage loans, meanwhile, which typically comprise a quarter of community-bank business, are also on the decline. Credit Suisse economist Hiromichi Shirakawa says Japan's historic five years of growth largely passed the regions by.
HIROMICHI SHIRAKAWA, CHIEF ECONOMIST, CREDIT SUISSE JAPAN: Fiscal policy tightening or reduction of public spending has hard hit regional economies such as Hokkaido or Shikoku or Kyushu area, which have been generally speaking, more dependent on government spending.
CRAFT: With mega-banks pecking away at their turf and their capital bases dangerously depleted, a third of all listed regional banks reported net losses in the first half of this fiscal year. Still, analysts argue that bank failures are unlikely.
TORITANI: The default of a local bank would be unthinkable. Regional banks have huge market shares in their districts and the economic impact of a failure would be enormous, so none of them can be allowed to go under.
CRAFT: Japan's last recession, starting back in the 1990s, triggered a drastic consolidation among Japan's big city banks. Analysts say the same thing could happen this time with this recession, among Japan's regional banks. They're forecasting a wave of mergers, among the more than 100 local lenders. Lucy Craft, NIGHTLY BUSINESS REPORT, Tokyo.
