By Leika Kihara
TOKYO, May 11 (Reuters) - Two regional banks in Japan's northern prefecture of Aomori said they were considering consolidating, joining a flurry of lenders seeking to survive amid narrowing margins from a rapidly ageing population and ultra-low interest rates.
If the deal materialises, it could become the first case under a revised law that took effect in November exempting regional bank consolidations from antitrust rules.
Aomori Bank 8342.T and Michinoku Bank 8350.T, both listed lenders based in Aomori, said in a statement on Tuesday they were "considering" a business consolidation.
The statement came in response to a report by public broadcaster NHK on Monday they were in talks to consolidate, a move that would give them a 70% share in the prefecture.
Takayuki Fujisawa, president of Michinoku Bank, said joining forces with Aomori Bank was "the best option" for the regional economy, according to Jiji news agency.
Prime Minister Yoshihide Suga has emphasised the need for regional banks to consolidate, as years of ultra-loose monetary policy and a dwindling regional population erode their profits.
"Regional banks are facing a difficult business environment," Finance Minister Taro Aso told reporters.
While regional banks have played a key role in supporting firms hit by the COVID-19 pandemic, some policymakers warn they could be saddled with a pile of bad debt if the crisis persists.
Particularly under strain are borrowers hit by state of emergency curbs to combat the pandemic. Major tourist agency KNT-CT Holdings 9726.T said on Tuesday it was considering raising capital, after media reports that it would seek 40 billion yen ($368 million) in aid from banks and its parent firm.
"Even after the pandemic subsides, financial institutions' profits will remain under pressure from low interest rates and structural factors," the Bank of Japan warned in a report last month.
Regulators have long prodded regional banks to merge, including by changing laws to exempt their consolidations from antitrust rules. The BOJ has also created a scheme aimed at incentivising regional lenders to consolidate, underscoring its concern over the health of the banking system.
($1 = 108.8100 yen)
(Reporting by Leika Kihara; Additional reporting by Yoshifumi Takemoto; Editing by Jacqueline Wong and Gerry Doyle)
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.