One investor has $1b to plow into shaky Japan banks

Bloomberg

Yoshitaka Kitao wants to build a financial empire in an area shunned by investors: the downtrodden ranks of Japan’s regional banks.
The chief executive officer of SBI Holdings Inc says he has close to $1 billion to plow into any of the 104 local lenders scattered across Japan, which were described recently by one analyst as an “accident waiting to happen.” More than 10 banks have approached the financial conglomerate for investment, Kitao said in an interview, without naming them.
Kitao is betting that his firm, which has shaken up Japan’s securities industry by becoming the biggest online brokerage, can help to modernise banks that still rely on costly physical branches to serve ailing rural communities. SBI took its first step last month when it agreed to take a one-third stake in Shimane Bank Ltd, a struggling lender in western Japan.
“These banks are coming to us with the hope that they can find a way out of their plight by teaming up,” he said. “The key thing is how to change them by utilising the Internet and fintech as a weapon.”
Profitability of Japan’s regional banks is waning as plunging interest rates dent income from loans and bond investments. To counter that, they are investing in securities abroad and lending to riskier borrowers, making them vulnerable to losses if the economy and financial markets sour.
“The negative interest-rate environment and delayed restructuring by regional banks are likely to keep industrywide profitability low,” S&P Global Ratings analysts wrote in a report published.
Kitao, 68, said his group can help bring down banks’ costs by sharing information-technology systems and anti-money laundering processes, and harmonising their automated teller machine networks. By improving their online services, lenders could make it easier for customers to use their accounts and obtain loans from banks in their hometown even after they move elsewhere, he said.
The former Nomura Holdings Inc banker said that SBI is “doing due diligence one by one” on the banks that have approached it. The firm is also looking for investors in a planned holding company that will take stakes.
Various firms have shown
interest, including the nation’s megabanks, larger regional lenders and overseas entities, he said.
Japanese banks are the worst-performing industry group on the Topix stock index over the past four years, and now trade at just 0.32 times book value on average. Regional lenders have an average return on equity of only 3%, less than half that of the benchmark gauge, data compiled by Bloomberg show.
The Topix Banks Index closed 0.5% higher on Tuesday in Tokyo.