TOKYO -- The government is set to relax rules on the application of the antimonopoly act in a bid to help struggling local banks merge and ailing bus operators join hands in areas where their markets are shrinking to prevent these businesses from going under.
The government will allow the Japan Fair Trade Commission (FTC) to flexibly screen applications for permission for mergers within such industries under the legislation to allow for certain exceptional measures. A panel of experts will consider a system to relax the application of the law in detail and the outcome will be incorporated in the growth strategy that the government will work out in summer 2019.
The Council on Investments for the Future, headed by Prime Minister Shinzo Abe, came up with the idea because the government regards these business sectors as those supporting regional infrastructure. Members of the council fear that if firms in these sectors were to go under, it would deal a serious blow to the local communities they serve.
In other words, the government prioritizes the survival of these businesses over ensuring fair competition. However, how to respond to concerns about a possible decline in the quality of services will pose a challenge.
It was reported at the meeting of the council on Nov. 6 that 54 out of 106 regional banks and other local financial institutions were in the red in the business year that ended in March 2018. Moreover, it was confirmed that roughly two-thirds of some 250 bus operators across the country suffered deficits in the same business year.
The council then concluded that the realignment of these businesses is indispensable for survival, pointing out that there are fundamental problems behind the financial difficulties plaguing these businesses, such as the declining birthrate and population outflow from regional areas.
The government will help such businesses supporting local infrastructure merge in order to prevent cut-throat competition between each other and them failing in regions where their markets are shrinking due to depopulation.
To that end, the government has proposed to set up a division specializing in facilitating mergers between these businesses in the FTC, and introduce a system under which ministries and agencies concerned can express their views on the application of the antimonopoly act, which will be reflected in the FTC's screening of applications for mergers. Moreover, the government has pointed to the need to work out transparent rules under which it is easy to predict whether mergers will be permitted.
To carry out such reforms, the government will consider either revising the Act on Prohibition of Private Monopolization and Maintenance of Fair Trade or reviewing the FTC's relevant guidelines.
FTC Chairman Kazuyuki Sugimoto suggested at the meeting that the FTC will support the move. "If businesses can't provide services necessary for regional communities because the market shrinks and makes it impossible for multiple service providers to survive, we don't see mergers as being problematic under the antimonopoly act," he said.
In a related development, the government will also facilitate the supply of human resources from urban areas to rural areas and encourage smaller businesses to invest in information technology.
The government intends to ease rules on the application of the antimonopoly act largely because Fukuoka Financial Group Inc. and The Eighteenth Bank Ltd. took 2 1/2 years to merge since they reached a basic agreement on amalgamation in February 2016. This is attributable to a conflict between the Financial Services Agency (FSA), which was enthusiastic about facilitating mergers between regional banks to stabilize their management, and the FTC, which was worried that the merger would decrease the number of choices of banks and hinder fair competition.
A senior official of the FSA, which has supported mergers between regional banks for their survival, expressed "a sense of satisfaction" with the government's recent move.
However, the FTC fears that mergers between local banks without seriously ascertaining whether such moves would be effective could rather weaken these entities. Regional companies are also worried that mergers between local banks would decrease their numbers and make it difficult for them to obtain loans.
Ryoji Yoshizawa of S&P Global Ratings Japan Inc. pointed out that facilitating mergers alone would not be enough for local banks to survive. "Just easing the competitive environment alone won't enable local banks to survive. The government should clearly draw a line between the public nature of local banks and their responsibility as private banks and urge them to make efforts to improve their profitability," he said.
(Japanese original by Takashi Narumi and Kenji Wada, Business News Department)