By Takahiko Wada
TOKYO (Reuters) - A former top official at Japan's antitrust watchdog on Friday cast doubt on whether smaller banks should form large-scale mergers to survive, underscoring differences within the government on strengthening local lenders.
Japan's more than 100 regional banks suffer from shrinking populations and rock-bottom interest rates, prompting the regulatory Financial Services Agency to push them to improve their business models, including through mergers. But this has met resistance from Japan's Fair Trade Commission.
Rather than bulking up through consolidation, regional banks should first become more competitive by cutting costs and improving customer services, Hideo Nakajima, who was Secretary General of the Japan Fair Trade Commission (JFTC) until July, told Reuters in an interview.
"Must we allow a monopoly in order to avoid systemic risk?" said Nakajima, now a special adviser to law firm White & Case on global antitrust issues. "Would allowing a monopoly really address systemic risk or such issues as low interest rates and population decline?"
In an unusual divide between government agencies, the commission has put two planned mergers on hold because of antitrust objections: Fukuoka Financial Group Inc <8354.T> and Eighteenth Bank <8396.T>, as well between Daishi Bank <8324.T> and Hokuetsu Bank <8325.T>.
Nakajima declined to comment on specific cases.
A spokesman for the Regional Banks Association of Japan declined to comment on Nakajima's remarks or on specific cases.
He said: "We would like to receive the most favourable conclusions (from the FTC), based on the importance of maintaining financial-mediation functions in local areas into the future."
(Reporting by Takahiko Wada; Writing by Taiga Uranaka; Editing by William Mallard and Nick Macfie)