Banks with “shattered” business models warned by regulator to adapt: report

The FSA has targeted some local lenders for “intensive dialogue”.

Japan’s regional banks must convince the local regulator of their ability to adapt in the face of an increasingly grim business environment or else face regulator action, commissioner Toshihide Endo told Bloomberg in an interview.

The Financial Services Agency (FSA) has targeted some local lenders for “intensive dialogue”, Endo said. He hinted at the need for management changes at banks that don’t change their strategies.

Also read: Japan's regional banks gain lifeline with regulator's strategy switch

“There has been no innovation,” Endo said. “The old practice of making money by simply taking deposits and lending them out at a higher rate “has been completely shattered. Banks should be thinking about a business model to survive. But are they?”

The commissioner didn’t identify or disclose the number under scrutiny but said the FSA started talks with them even before the outbreak struck.

Failure to convince the FSA of their long-term viability could lead it to impose business improvement orders, a tool that carries a heavy stigma in Japan and is normally reserved for rule violations.

The discussions reflect the regulator’s growing frustration with regional banks whose profitability has long been eroding due to rock-bottom interest rates and stagnating local economies.

Here’s more from Bloomberg.