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Friday, 19 April, 2002, 05:46 GMT 06:46 UK
Japanese banks to merge
Bank of Japan employee with new banknotes
The mounds of bad debt are starting to come home to roost
The consolidation in Japan's financial services is accelerating in the wake of the removal of deposit guarantees with the announcement by two major regional banks that they could merge.

Nishi-Nippon Bank, which covers the west of the country, and Fukuoka City Bank, based in the far southern island of Kyushu, say they are discussing uniting under a single holding company.

In effect, that would move the new creation into the number four spot among regional banks, which form a vital component of Japan's multi-layered lending system.

Rolled together, the two banks have combined assets of about 7.25 trillion yen ($56bn; 38.5bn). Their shares rose about 8% apiece on the news.

Stronger together

With bad debts still piling up, smaller banks are desperate to boost their creditworthiness, and more mergers are likely to be the result.

In the case of Nishi-Nippon and Fukuoka City Bank, heavy loan losses have been incurred after two regional supermarket groups, Kotobukiya and Niko Niko, collapsed.

The trigger has been the cancellation, at the beginning of April, of what used to be a cast-iron guarantee that the government will bail out savers should a lender collapse.

Unsurprisingly, savers have responded by jumping ship to larger, more apparently stable instutitions.

The move also comes as Japan tries to strengthen its financial regulation, amid concerns that the snail's-pace of reform has pretty much run into the sand.

See also:

12 Apr 02 | Business
Tokyo bank report calms few nerves
08 Mar 02 | Business
Foreign bank forces Japan bankruptcy
25 Feb 02 | Business
Bailouts threaten Japan reforms
20 Feb 02 | Business
Nikkei up ahead of Japan rescue plan
07 Jan 02 | Business
Japan seeks support for bank rescue
07 Dec 01 | Business
Q&A: Japan's economic problems
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