TOKYO Sumitomo Mitsui Financial Group (8316.T) (SMFG) and Resona Holdings Inc (8308.T) are in talks to merge some of their units, sources said, in what would be the latest in a slow but steady wave of consolidation in Japan's regional banking industry.
Recently, the Bank of Japan Governor Haruhiko Kuroda - in an unusually frank call for bolder steps to deal with an over-crowded regional banking sector - said mergers and consolidation may be among options for financial institutions to boost profits amid an ultra-low interest rate environment.
In 2016, Fukuoka Financial Group (8354.T) and Eighteenth Bank (8396.T), both based in the southwest island of Kyushu, agreed to merge, although in January they postponed their merger date by six months to October this year as the fair trade commission has yet to give its approval.
SMFG and Resona, Japan's third- and fifth-largest lenders, respectively, are in talks to merge their units that cater to the city of Osaka and its neighboring port town of Kobe, said sources with knowledge of the deal, who did not want to be named as they were not authorized to discuss the matter publicly.
The total assets of the three units slated to be combined - SMFG's Kansai Urban Banking Corp (8545.T) and Minato Bank Ltd (8543.T) and Resona's Kinki Osaka Bank - stand at about 11.8 trillion yen ($104.30 billion).
SMFG and Resona, however, said in separate statements on Monday that nothing had been decided on merging their units.
There are more than 100 regional banks in Japan, accounting for nearly half of $4.5 trillion bank loans outstanding in the country. While these lenders are key players regionally, many have been hit by weak loan demand and falling interest rates.
And unlike major banks with sizeable overseas operations, regional lenders are tied to local economies that have bleak prospects given an ageing population.
The SMFG and Resona units that are reportedly being merged posted lower profits for the nine months ended December.
The Nikkei business daily reported the banks would create a joint holding company that will own the three regional units, but Reuters' sources said the structure of the merger had not yet been finalised.
($1 = 113.1300 yen)
(Reporting by Taro Fuse and Taiga Uranaka; Editing by Himani Sarkar)