Can succession business lift Japanese banks out of their earnings slump?

Regional banks may lose about 60% of inheritance funds.

Bloomberg reports that Japan’s embattled regional lenders are trying to tap into the $460b inheritance market in their quest to break out of the country’s earnings crunch.

Also read: Should Japanese banks consider mergers to combat profit woes? 

A net 40t yen in household financial assets is expected to flow out of regions other than Tokyo and Osaka as a result of succession efforts and regional banks are poised to bear the brunt of the fallout as they stand to lose about 60% of funds subject to inheritance, according to Fidelity Investor Education Institute estimates.

Local lenders like Mie Bank have started deploying trusts to secure the next generation of clients and their deposits in addition to the launch of an inheritance product that assists in unlocking funds when an estate holder dies. “When succession occurs through the death of an elderly customer, often their sons and daughters live in or around Tokyo, and it was a problem that our deposits were flowing out into the big city,” said Kazuhito Wakiuchi, a manager at Mie Bank in western Japan.

Growing their inheritance arms might come in useful for struggling regional banks especially as the competition for lending intensifies and demand dries up as the ageing population turn to less risky assets. Banks across the country have been suffering protracted losses following an ultra-low interest rate environment engineered by the Bank of Japan. 

“Succession business is a key area to secure the survival of regional banks,” said Kaori Nishizawa, a director for financial institutions at Fitch in Tokyo. Demand for trust products will rise as the population ages, and banks earn fees when they sell them, she said.

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