Should Japanese banks consider mergers to combat profit woes?

A shrinking population and negative interest rates are hitting banks right in the gut.

Blomberg reports that Japanese Bankers Association chairman Koji Fujiwara believes that Japanese banks can better withstand declining profitability by exhausting partnership options—from mergers to informal tie-ups—with various players in the sector. 

“Consolidation has to advance from here, and the formats for doing this are going to get more diverse,” Koji Fujiwara told Bloomberg as he sees more scope for cooperation between regional and large banking groups.

Also read: Lower core lending and fees hit Japanese regional banks' profits

In fact, management consultancy Bain & Co. has estimated that about half of the nation’s lenders will disappear by around 2025 amidst a slew of problems linked to shrinking population and negative interest rates.

Fujiwara, who is also president of Mizuho Financial Group Inc.’s main lending unit, said he sees room for win-win relationships where large banks assist small businesses in rural areas that want to expand overseas and local lenders provide enhanced services, similar to when Mizuho partnered with Shizuoka Bank Ltd. last March.

Here’s more from Bloomberg.