Photo/IllutrationThe Bank of Japan’s head office in Tokyo (Asahi Shimbun file photo)

Regional banks are facing difficulties due to extremely low interest rates prompted by the Bank of Japan’s large-scale monetary easing policies and many are considering closing some branches and decreasing the number of employees.

According to an Asahi Shimbun survey, about 80 percent of respondents replied that they are concerned about adverse effects from the monetary easing policies under “Abenomics.”

In addition to the continuing decline in population in rural areas, extremely low interest rates have continued for more than five years. Because of that, regional banks’ revenues from lending have been sluggish.

Many of those banks are now considering slashing the number of branches and employees. If they do so, the cuts could severely impact local economies.

The Asahi Shimbun conducted the survey of 104 regional banks throughout the country in July. Of these, 90 responded.

The survey asked the banks what they are concerned about for their businesses. (The banks were allowed to choose multiple answers from several choices.)

Seventy-five banks chose “Prolongation of the Bank of Japan’s monetary easing policies.” The figure was higher than the 73 banks that selected “Decline in population in their areas,” and the 46 that chose “Difficulties in improving earning power.”

According to the Japanese Bankers Association, the total amount of deposits with the 104 regional banks stands at about 327 trillion yen ($3 trillion), almost equivalent to the approximately 363 trillion yen of Japan's five biggest banks.

According to the government’s Financial Services Agency, half of the regional banks suffered deficits in their core businesses, including lending, in the fiscal year that ended in March 2018.

The bank's interest rates for lending have declined due to the extremely low interest rates. In addition, populations are decreasing in rural areas. In such a situation, regional banks are competing hard to find borrowers.

The Bank of Japan started large-scale monetary easing policies in April 2013. The central bank provided an unprecedentedly large amount of funds to financial markets to lower interest rates.

Because of that, interest rates for housing loans have declined. In addition, the Japanese yen has weakened and stock prices have risen. As a result, Japan’s economic conditions have improved.

However, the rise in wages has been sluggish. Consequently, the Bank of Japan introduced a negative interest rate policy. But the central bank is still unable to achieve its 2 percent inflation target.

Thus, monetary easing has been prolonged, and, as a result, financial institutions are facing a decline in revenues from lending due to the extremely low interest rates.

To cope with the situation, major banks are expanding their overseas operations. However, regional banks cannot do so because their businesses are basically limited to their local areas in Japan.

In such difficult circumstances, the survey also asked regional banks about their branches and employees.

Thirty-one banks replied that they will slash the number of branches. The figure is close to the 36 banks that answered that the numbers of branches will remain unchanged. Only three banks said that they will increase their branches.

As for employees, 46 banks replied that their numbers will be unchanged, and 29 banks responded that they will decrease the number of employees. Only one bank said that it will increase its employees.

It is vital for financial institutions to provide funding to new industries to revitalize local economies. If those institutions’ fiscal health weakens, their ability to support local economies will also weaken.

In a Bank of Japan Policy Board meeting on monetary policies, held in late July, the central bank decided to allow a rise in interest rates within a certain range to lessen the adverse effects from extremely low interest rates.

At the same time, however, it also showed a stance of maintaining the extremely low interest rates for the time being as the consumption tax rate is scheduled to be raised in 2019.

Many experts say that the central bank’s tolerance of a rise in interest rates will be limited and, therefore, will not have much of an effect on improving bank revenues.