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Moody's: Daishi Bank's merger with Hokuetsu Bank is credit positive

Moody's said April 10 that Daishi Bank Ltd.'s merger with Hokuetsu Bank Ltd. is credit positive for the former as the consolidation of numerous overlapping branches of the two banks will help reduce expenses.

The two banks said April 5 that they would combine their operations under a joint holding company, Daishi Hokuetsu Financial Group, this month and merge in April 2020 in a bid to survive Japan's negative interest rate environment amid a shrinking population.

The rating agency said that a merger of the two lenders would enhance the combined entity's competitive position in Japan's Niigata prefecture, without materially weakening Daishi Bank's credit quality.

Moody's expects the two banks to encounter bumps during the merger process given that both have no meaningful experience in business consolidations.

The merger between Daishi Bank and Hokuetsu Bank is the third in-market regional bank merger announced in 2017 amid a tough operating environment. In March, Sumitomo Mitsui Financial Group Inc. and Resona Holdings Inc. agreed to merge three regional bank units in Japan's Kansai region, while in February, Mie Bank Ltd. and Daisan Bank Ltd. agreed to merge and form a holding company.