Japanese regional banks form fintech joint venture in bid for survival

Seven lenders will take a stake of little over 14% in the JV.

Seven Japanese regional banks have teamed up to create a financial technology research company which aims to leverage AI and robotic process automation (RPA) technologies to survive declining loan demand and ultralow interest rates pushing banks into partnerships and consolidation just to stay afloat.

Senshu Ikeda Bank, Gunma Bank, San-in Godo Bank, Shikoku Bank, Chiba Kogyo Bank, Tsukuba Bank and Fukui Bank are set to take a stake of a little over 14% in the joint venture each, which will have $916,000 (100m yen) in initial capital.

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The JV will leverage AI to analyse deposit account activity and study technologies to reduce office work and bring costs down for the embattled financial sector.

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Although ultralow interest rates engineered by the central bank are shared by all players in Japan's banking sector, regional banks have been bearing the brunt of the problem as net interest income - which accounts for 90% of their operating profits - continues to trend downwards and squeeze profit margins. 

The safeguards of regional banks are similarly caving under pressure as capital adequacy ratio fell to 9.9% in September 2017 compared to 11% in March 2014. “This suggests that the buffers of regional banks are diminishing and the ability to withstand a large negative economic shock over the coming quarters is weakening,” according to BMI Research.