By Leika Kihara and Takahiko Wada
TOKYO (Reuters) - As an ageing population and years of ultra-low interest rates prompt Japan to push for consolidation among regional lenders, Chiba Bank is weathering the challenge with a different approach - by forming loose alliances or "wings" with other players.
One of the alliances started by Chiba Bank <8331.T> - a lender based in a prefecture that is home to the Narita airport and Tokyo Disney Land - groups 10 regional banks across Japan with total assets worth 70 trillion yen ($665 billion).
"Together, we try anything that may bring positives as there are limits to what a single bank can do," Chiba Bank President Hidetoshi Sakuma told Reuters on Friday. "We're open to and will welcome any bank keen to join."
Under the alliance dubbed "tsubasa", or wings in English, the members have offered syndicated loans, developed financial products and created a common, cash-less settlement platform.
Ideas on how to cooperate pop up at casual gatherings among the banks' heads, who even travelled to Europe and the United States together to interact with lenders and fintech firms.
Members are under no pressure to participate in projects that do not match their needs, Sakuma said.
"There could be more harm than good in consolidating", as merging two banks could lead to power tussles and hurt employees' morale, he added.
A recent union of Eighteenth Bank and Shinwa Bank in Nagasaki, under which the merged bank would belong to a group based in Fukuoka, has fuelled worries in the community of a shift in focus away from local borrowers.
Regulators have long prodded regional banks to consolidate as their combined net profits tumbled 40% in the past four years. More than 100 lenders across 47 prefectures compete for lending margins that have sunk to 0.2%.
Prime Minister Yoshihide Suga too has emphasised the need for consolidation, but regional banks have been slow to respond.
"Each region has its own history and unique industrial structure, which lenders based there know most about," Sakuma said. "It's better for each regional bank to stay independent and learn from one another."
Chiba Bank will continue to shun mergers, Sakuma added, as its alliances pay off.
Its alliance with a lender in neighbouring Saitama has generated cumulative synergies worth nearly 10 billion yen since its launch in fiscal 2016, the bank says.
Chiba Bank's overhead ratio, a measurement of the operating costs of business versus income, stands at around 53%, versus the average of 73% for regional banks.
Its annual profits from core business operations rose 1.4% to 67.5 billion yen in the year ended March.
The benefits of being based in Chiba, which also has Japan's sixth largest population, puts the bank in a better position than many others battling a shrinking local economy.
Still, the alliances are only among many steps Chiba Bank is taking to stay relevant in an age of rapid digitalisation, Sakuma said.
"We're thinking about it," he said, when asked whether Chiba Bank would form alliances with non-bank entities. "Eventually, we'd like to be a company like Alibaba."
The Chinese e-commerce giant <9988.HK> has a host of other businesses, including investments in online bank MYBank and fintech affiliate Ant Group.
(Reporting by Leika Kihara and Takahiko Wada; Editing by Himani Sarkar)