Dan Jones
analyses plans by Japan’s fourth-largest banking group, Resona, to
become an ’unrivalled leader in retail financial services’. But as
the economy falls into a deep recession, all banks in the country
face the same problems – selling loans, credit cards and investment
products to a society wedded to cash, and low returns.
Though Resona is often grouped with the three
Japanese megabanks – Mitsubishi UFJ (MUFG), Mizuho and Sumitomo
Mitsui – its retail banking capabilities have remained relatively
limited in comparison to its larger peers (if such a phrase can be
applied to a group with 13 million retail deposit accounts). The
bank is looking to change this, however, having announced ambitious
plans to become a “true retail bank” via a reorganisation of its
branch management system and a focus on new products lines.
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The plan, aimed at making Resona the
“unrivalled leader in retail financial services”, is not beyond the
capabilities of the bank, which maintains a branch network
comparable to its competitors. Resona, via its subsidiaries Resona
Bank, Saitama Resona Bank, Kinki Osaka Bank and Resona Trust &
Banking, has around 600 branches across Japan; its internal
calculations put the average branch network across the three
megabanks at 644 as of August 2008.
What about Japan Post Bank’s
¥200trn?
Resona is confident the changing
priorities of Japan’s Post Bank, the country’s largest retail bank
by deposits – around ¥200 trillion ($2 trillion) – which is making
gradual progress with its plan to develop its own retail banking
products and services, will not hinder Resona’s plans.
“We do not think Japan Post Bank will
become our competitor, considering our branch network is
concentrated in the Kansai and Tokyo Metropolitan areas,” a Resona
spokesperson told RBI.
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By GlobalDataThe group will hire around 160 personal
banking general managers in order to boost sales activity within
its branches, as well as introducing a programme that will move
some back-office staff to help boost total personal banking
personnel by 20 percent.
“We are strengthening our sales channels
through this branch network and via internet banking, a service
which we improved last year,” said the spokesperson.
On the products side, the transformation plan
takes on a more familiar tone: Resona plans to increase the sales
of investment products and annuities, tapping into what it believes
are strong economic and demographic trends – specifically the
continued near-zero interest rates that may encourage consumers to
seek alternative outlets for their money.
Banks both domestic and foreign have made
similar mistakes before in overestimating the risk appetite of the
Japanese consumer: the trillions of yen held in deposits at Japan
Post Bank being a stark reminder of the fact most Japanese are
still content to sit in cash despite almost two decades of
ultra-low interest rates.
Utterly wedded to cash
Indeed, Japan’s banks have
consistently failed to change the investment appetite for the
majority of Japanese consumers, who remain utterly wedded to cash.
Even credit card spending is low: a recent report from Mercator
described card spending in the country as “woefully low” and
estimated that average card spend was just $30 a year.
Yet Resona, for its part, points to its
relative success in the sale of financial products over the past
five years. The number of financial products sold to individuals
rose from ¥790 billion in 2002 to ¥3.99 trillion in 2007;
investment products as a proportion of total financial assets
accounted for 16 percent in fiscal 2007 compared with 3.7 percent
in 2002, helped by a strategic partnership with Crédit Agricole
which has seen the French bank provide Resona with original
investment products since 2002.
Whether that rate can be sustained in an
economic environment that is more inhospitable than that seen over
the past decade is another matter. “Sales of investment trusts
dropped dramatically due to the recent market turmoil,” the
spokesperson told RBI, “but given the current relatively
low price of Japanese stocks, we expect sales of investment trusts
investing in those stocks will increase again.”
Despite a focus on investment trusts, its
outlook remains cautious: Resona expects trust income to remain
below 2007 levels for the next three years.
With the housing market largely saturated, the
bank is turning its attention to other consumer loans, aiming to
increase the segment from ¥55.5 billion as of March 2008 to ¥118
billion by March 2012. Products such as ATM card loans and
fast-response loans will rely on screening models, using
transaction histories and other automated processes in order to
gauge risk.
For now, however, deposits remain king. “The
balance of individual deposits in the nine months to December 2008
increased by ¥555.2 billion, or 2.6 percent, due to baby boomers’
retirement allowances and other factors,” said the
spokesperson.
That balance rose by around ¥355 billion in
the last three months of 2008 alone, as the Japanese consumer
reverted to type – and into cash – following the fall of Lehman
Brothers in October last year.
