News Archive : Japan Real Estate

Monday, November 14, 2005

BANK STRATEGY: Resona Focuses On Regional Needs, Mortgage Loans

BANK STRATEGY: Resona Focuses On Regional Needs, Mortgage Loans
2005/11/10, Nikkei English News, , 665 words

TOKYO (Nikkei)--While struggling to repay a huge amount of public funds, the Resona group has pursued for the two and a half years of its effective nationalization a "third way" of doing business that straddles the line between regional banking and megabank operations.
The group led by Resona Holdings Inc. (8308) comprises Resona Bank, Saitama Resona Bank, Nara Bank, Kinki Osaka Bank and Resona Trust & Banking Co. Its primary task is to pay back a total of 2.92 trillion yen it owes the government.
Eiji Hosoya, the chairman of Resona Holdings, has said, "Through steady effort, we will be able to make clear progress in repaying the public funds in a few years." One estimate, however, suggests that it will take at least 10 years to repay the government in full, even if the group uses all of its annual profit to do so.
Speaking about the third-way business model, Resona Bank President Masaaki Nomura said, "We aim to become a bank that handles financial products rivaling those offered by megabanks and meets regional demand by penetrating deeper into communities than shinkin banks (credit associations)."
Resona Bank's Sendai branch in Miyagi Prefecture, for example, frequently receives staff from other branches who seek to learn from its success in providing 10 billion yen in housing loans over a six-month period.
The branch assigns an employee to each small and midsize real estate firm in its territory, which handles everything from giving advice to extending loans.
Mortgage loans, which can secure a certain profit margin at low risk, are the biggest income source for the Resona group's retail banking division. In fact, Resona Bank and Saitama Resona Bank increased their combined mortgage loan balance to 700 billion yen in the year ended March 2005, outperforming every major banking group. Mortgage loans now account for 40% of the group's total lending balance, double the 20% or so at major banking groups.
In addition to focusing on mortgage loans, Resona has taken a community-oriented sales strategy in which its branches are divided into 30 blocks, each consisting of about eight outlets and operating like a single shinkin bank.
Akira Kotani, a Resona Bank executive that formerly headed the Kyushu block, said, "A larger-than-expected number of our customers, mainly small businesses, ask for our help in cutting deals with companies in other regions." For example, his block assisted a Fukuoka-based food company in acquiring a Tokyo firm in the same industry, and helped a Kumamoto-based construction firm buy real estate in Tokyo.
Another block covering northern Osaka concentrates its wholesale operations at a branch near JR Osaka Station, with its other locations specializing in retail services.
Nara Bank has launched a service offering management advice to regional firms in return for receiving a portion of any profit gains that result. Yoshinori Kanbayashi, the bank's president, said, "We will double our efforts to deepen ties with regional customers."
However, Resona has suffered a backlash against its community-oriented policy, with its market share declining in fiscal 2004 to 5.5% in Tokyo -- the most hotly contested market in Japan -- in terms of lending balance, compared with an 18.5% share in Osaka and 41.3% in Saitama Prefecture. An executive at a major bank said, "Magabanks are taking every opportunity to chip away at Resona's presence in Tokyo."
In fact, the group has seen deposits drop 20% and its lending balance shrink 30% over the past decade, partly because it has intentionally limited loans to real estate/construction firms and nonbanks in reaction to its lavish lending to those sectors during the era of the bubble economy. Major banks agree that Resona's power has eroded.
Trying to bolster its marketing muscle, Resona plans to reorganize branches across the country into 12 blocks next April, with each group comprising 25 outlets on average, led by a manager selected from among top executive directors. It envisions each block operating like a "regional bank," rather than a "shinkin bank."
(The Nihon Keizai Shimbun Thursday morning edition)