SBI's clever partnership strategy that took advantage of Shimane Bank's weaknesses. Is there a glimmer of hope for revitalizing regional banks?
SBI Holdings (8473) decided to invest in Shimane Bank (7150),Shimane Bank's stock price surgedas a result.
It is a groundbreaking development for the online brokerage leader to form a capital and business alliance with a regional bank. On the other hand, it also meansregional banks are in a precarious positionas a whole.
The spread is narrowing and there are no loan customers
Regional banks are entering a difficult era.
- Negative interest rates
- Contraction of the regional economy
- Cashless shift
- Aging depositors
- …
In particular,the impact of negative interest rates cannot be measured. The bank’s business model earns profits from the difference between lending rates and deposit rates, so under a negative interest rate environment where deposit rates cannot be made negative, the "net interest margin" continues to shrink.
Also,if the regional economy shrinks, there will be fewer lending clients. A harsh cycle has begun where capital pours into a few good companies, pulling down interest rates further.
The lack of lending customers is also reflected in numbers. The "loan-to-deposit ratio"—the ratio of loans to deposits—has been steadily decreasing in recent years.
If banks cannot gain both lending margins and volume, the only ways to expand profits are as follows.
- Investment income from securities
- Fees from sales of investment trusts, etc.
That is,banks must find ways beyond lendingto grow their profits.
The alliance is a windfall for SBI
Now, let’s read SBI Securities and Shimane Bank’s press release about their partnership.
2. Contents of the business alliance
Notice on Capital and Business Alliance with Shimane Bank Co., Ltd. (SBI Holdings)
(1) Provide Shimane Bank’s customers with our group’s wide range of financial products and services
(2) Use fund information obtained from our group’s asset management know-how and global network to advance Shimane Bank’s asset management
(3) Through the technologies held by our group and our group’s investee companies, expand customer convenience for Shimane Bank and optimize sales costs, etc.
What is written here can be summarized as:Sell SBI’s investment trusts to Shimane Bank’s customers, and also sell investment trusts to Shimane Bank itselfwithout any hesitation.
Indeed, this is beneficial for SBI. It can sell products to customers who were not previously accessible online, via Shimane Bank.
Moreover, Shimane Bank can earn fees by selling investment trusts to its own idle funds when there are few lending clients.
All of these can be done with no risk, sothe alliance is a windfall for SBI.
Will Shimane Bank be eaten by SBI?
So, what are the benefits for Shimane Bank?
In terms of acquiring investment trust sales know-how and improving self-fund management, there is potential for improvement compared to what had been done casually before.
On the other hand,there is a possibility that elderly customers who came to deposit will be sold unnecessary investment trusts.A similar situation is seen at Japan Post Bank.
Also, if banks just follow orders,they may be sold high-yield but high-risk products.
In this alliance, Shimane Bank is not included in SBI Holdings’ consolidated group. In other words, it is not committed to improving the bank’s performance.
SBI cannot be expected to bring regional revitalization or banking management know-how. Yet, their attempt to bring regional banks under their umbrella suggests they are exploiting a capital shortfall to expand their own product sales channels.
This alliance should be viewed as part of SBI’s sales strategy rather than a genuine regional bank revival plan. Expecting the future revival of regional banks is premature.
