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In aging Japan, regional banks turn focus to inheritance business

In a country where people over the age of 65 make up roughly a quarter of the population, Japan's regional banks are looking to tap into inheritance-related services to boost fee-based income, while aiming to develop new asset management relationships with the younger generation both close to home and further afield.

While banks generally do not report specifically on their inheritance-related businesses, the number of wills entrusted to banks rose 52.6%, to 107,051 between March 2012 and September 2016, according to the Trust Companies Association of Japan. In addition, a January report from Fidelity Investments noted that Japanese bequeathed approximately ¥46 trillion of assets to their families in 2015.

With baby boomers now approaching their 70s and 80s, there is a "big business opportunity for inheritance advisory services and asset management services," Nobuhide Hayashi, chairman of Mizuho Bank Ltd., a unit of Mizuho Financial Group Inc., told an industry conference in May.

Follow the flow

At Resona Holdings Inc., "we have seen deposits flowing in through inheritance [assets] in recent years," said Kenji Nemoto, general manager of the company's private banking division, which serves small and medium-sized businesses and wealthy individuals, with 300 consultants dedicated to inheritance advisory.

Nemoto added that he sees scope for banks to build on the relationships with clients seeking inheritance assistance by offering asset management services to them and the recipients of their inheritances.

For Japan's regional banks, the demand for inheritance services and any related asset-management opportunities could mean a promising market shift. Traditionally, the regional banks, without the resources and knowledge bases of their larger counterparts, have been limited to growing their businesses in their immediate markets.

"Regional banks and [Japanese cooperative banks] mostly operate at home. They have to make profits from domestic business," Shinya Furue, an analyst at Norinchukin Research Institute, told S&P Global Market Intelligence.

Inheritance advisory might be a growth avenue ripe for pursuing. In April, Nanto Bank Ltd., based in Nara near Osaka, began offering inheritance advisory services after becoming the first regional bank to receive a trust banking license since larger peer Chiba Bank Ltd.'s new license in 2006.

Other banks involved in inheritance services are using partnerships to generate more business, often beyond their home markets. For example, Chiba Bank, which is based east of Tokyo and is the ninth-largest bank in the country by market capitalization, agreed in 2016 to receive a fee from Okayama-based Chugoku Bank Ltd. in the southwestern part of Japan and Niigata-based Daishi Bank Ltd. in the northwest in exchange for providing inheritance, trust banking and other services.

Meanwhile, megabank Mitsubishi UFJ Financial Group Inc. is aiming, as part of a three-year business plan, to grow its inheritance and asset management business in Japan by 25% in the three years ending March 2018. Mizuho Trust & Banking Co. Ltd. and Sumitomo Mitsui Banking Corp. have not disclosed targets for their inheritance businesses but both banks' current business plan mentions general plans to grow their consulting and advisory services for retail customers.

The urban-rural divide

This is happening amid an increasing flow of deposits from rural to urban centers. While deposits have been rising at all banks in Japan, city-based banks have seen a much faster increase at 28.2% as of May 31 since 2012-end, according to the Japanese Bankers Association. In comparison, deposits rose 14.1% and 10.1% at first- and second-tier regional banks, respectively, over the same time period.

Mizuho Bank forecasts that the geographic shift in assets driven by inheritance trends, as parents living in rural areas bequeath assets to their city-based children, is expected to continue, predicting that ¥50 trillion of assets are expected to leave rural areas in the decade from 2017.

Intertwined in that shift is the rural-urban mix of the country's elderly population, with nearly 30% of Japanese aged 65 or older living in rural areas, compared with about 25% in Japan's largest cities of Tokyo, Osaka and Nagoya, according to Japan's Cabinet Office.

Shifting demographics, and deposits, could have a particularly dramatic impact on the smaller banks. "For small banks, a shift of several million yen in deposits to other banks has a big impact," Norinchukin Research Institute's Furue said, while noting that the movement of deposits is partly explained by the transfer of inheritance assets to city banks from regional lenders.

As of June 16, US$1 was equivalent to ¥110.69.