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Suruga Bank records highest revenue despite negative interest rates

Interview - January 11, 2017

In an interview with United World, Mr. Mitsuyoshi Okano, Chairman and CEO of Suruga Bank, explains the unique retail strategy and strong focus on digital services that led to the unprecedented revenue growth of the bank and affirms that "the introduction of negative rates has not had such a big impact on Suruga Bank's business model.”


Since the re-election of prime minister Shinzo Abe, Japan is undergoing a deep economic transformation and Abenomics has introduced a jolt into the economy. However, the monetary policy on one side and the fiscal policy on the other have produced mixed results so far. The sustainable role of Japan won’t be guaranteed without the private sector leading the country to move forward. In this context, what is your personal perspective about the impact of Abenomics, especially on the financial and banking sectors?

The effects of Abenomics on the financial sector were highly anticipated, even more than the results themselves. The anticipation had to do with the introduction of negative interest rates. This has a very strong influence over investment banking, for the industry as a whole and for companies with assets under management. Negative interest rates make it very difficult to generate positive revenues. This is something that has created a direct jolt towards our sector as a whole.


What is your strategy to overcome this key challenge?

We have actually been very fortunate as our security deposit ratio is very low, meaning that the amount of service capital that is invested in securities, bonds and etcetera is very minimal, so even with the introduction of negative interest rates when compared to other banks, the impact has been very minimal as well. The reason for this is due to the main quality of Suruga bank; we are very much focused on making individual loans. Other major banks are focused on making business loans to corporations and organizations. When you look at our percentage base, 89% of the loans originated by our bank are to individuals or personal loans. This has been our business model over the last 20 years and right now, given the current environment, this has allowed us not to invest our capital surpluses into securities, assets, bonds and etcetera. Therefore, the introduction of negative rates really has not had such a big impact on our business model.

Talking further about the characteristics of Suruga bank, one of the main features is that in 1996, we were the first Japanese bank to launch an automated credit screening system for retail customers. As a company focused on retail banking, we had to be very persistent in adding value to retail customers. Taking a look at our segmentations, we have 518 retail segmentations looking into the different profiles of our customers. For example, this has allowed us to issue a personal card in Japan, through which cash loans are possible, and they are very popular. This has allowed Suruga bank to be able to provide the screening and the activation of these cards within thirty minutes. For housing loans for individuals, we are able to do the screening process in under 24 hours. This speed of process is unseen in Japan, and this has helped us to become a dominant retail bank, focused on the Japanese economy.

We have been able to successfully develop our retail banking services through inventions and investments we have made; notably in our IT for infrastructure.

When the prime minister quailed this area with financial deregulations, there were a lot of regional banks in the USA that were very successful and that inspired us, for example Wells Fargo, one of the biggest in the USA at the moment. When we were looking and researching how they achieved some of their successes, we noticed their IT assessments, CRM (customer relationship management) software, and automated credit screening processes. When we researched these ways, we basically started thinking how we could apply the same CRMs that they were using for the Japanese banking industry. We were the first Japanese bank to be able to implement this into our system. In 2014 we brought in Accenture to help us to even further improve the CRM. The leap of our investments in IT infrastructure have really supported our growth.


We have spoken with the governor of the central bank of Italy and prominent CEOs. According to them, the online trend is revolutionizing the banking sector, the number of banks are expected to go down from over 20,000 to 600 globally, considering the growth rate of online banking of about 5%. In this context how are you leveraging on these new technologies?

We were one of the first Japanese retail banks to offer online banking services, starting in 2000. We actually had an interesting program; Japan is ultra-low wage, so even with time deposits, are not really an interesting thing. So we came up with new ideas. For example, if you were to make 1 million yen which is equivalent to an approximate 10,000 USD deposit, we would give out 10 lottery tickets from Japan’s biggest national lottery. If you were to make a 3-million-yen deposit, equivalent to 30,000 USD, you would get 30 tickets to the lottery. We were using this as an incentive to promote these time deposits and actually, since then we have created 11 millionaires that have won the lottery. This is one of the innovations we made in online banking.

Reaching different segments of the population, is the most important thing for our online banking. So, one of the strategies that we took was to create corporate partnerships with ANA, Japan’s leading airline; Recruit, one of Japan’s leading advertising companies and T-point, which is basically a point program for all different purchases throughout Japan. For ANA, Recruit or T-point, we have our own branch using our online banking system, and through this branch we are able to reach their customers.

In Online banking we continue to have new iterations. Now it’s not only about being able to access your online account through a smartphone, we are right now at the process of making an app focused on direct banking for our customers, we expect to launch it next May. This is going to be the first time a Japanese bank has done this, and I think this will be something that will attract a lot of attention. Having a direct banking experience using Suruga bank’s will be revolutionary.

Regarding either investing or having acquisition in the areas of Fintech, as a bank we are not really in the business of investing in things, but we have learned the business of leveraging technologies as they become mature, more adopted.


Horseman Capital Management Hedge Fund affirmed that the best strategy nowadays in order to gain returns is to shorten regional banks as many of them are expected to go out of business in the next 10 to 20 years. Are regional banks solid enough to overcome this period of uncertainty and volatility? How is Suruga bank positioned within this context?

Regarding the financial highlights, other regional banks have been experiencing a decreasing revenue over the last few quarters. We are very fortunate that over the last four quarters, we have grown the highest revenues in our history, and we will continue to have increased revenues every quarter by the end of the financial year.

Whenever we do overseas investment relations, the first thing we are asked is about the consolidation of regional banks. It is true that the consolidation between regional Japanese banks has been moving forward. When you look at the actual consolidation, there is a recent example of two regional banks that consolidated and all that happens is that these two regional banks created a parent holding company, and this same holding company is stated to be a consolidation, but the holding company still exists off the two operating banks. To be honest, it is not a merger at all, it is basically saving each other and saving costs by using one parent company instead of being two companies. This is the kind of business that has been promoted in Japan, that is why consolidation industry would like to continue under the smoke. It is not really the kind Anglo-Saxon way of looking at an acquisition or merger consolidation within the industry.

The second point is that I do believe there are too many financial institutions in Japan. Looking at all mega banks, regional banks, trust banks, trust associations, obviously there is a saturation that is not necessarily in the Japanese market. The consolidation in this area will likely continue whether it is under the current model, with the same holding company, or through actual absorption by larger banks.

I also get frequently asked questions regarding the terms and conditions under which the Suruga bank would consolidate with another bank. To be honest, we are looking for consolidation, although we have a simple and clear set of rules; if we were to consider, the bank should have single leadership, there cannot be two or three CEOs or directors and presidents like in other major banks. The aim is to have a very strong retail banking business compared to corporate banking business and they must be able to adopt the strong ICT systems that we have.

To be completely honest, these kind of grey, non-transparent mergers or consolidations by banking organizations are the actual problem within the industry, because there is no leadership, no clear efficiency gains from the consolidation themselves, because everybody is always thinking about equal footing or how it looks to third parties outside.

By becoming stronger and leveraging our strengths and show the way for other banks, for when the time comes we might be among the few banks left standing with regards to retail banking. I think this is the strategy that has brought us success until now and we will continue to bring this success in the future.


Being a regional bank means also having a particularly strong link to the territory where you operate. In this context could you please give us some of the key milestone in terms of the contribution to the social economic development of Japan in the prefecture where you operate?

As you mentioned, usually a regional bank is very focused on the prefecture or city where they are operating and have a strong bond with the local community. Looking at the history of Suruga bank, we originated in Shizuoka prefecture and Kanagawa prefecture, we call these our home. It is very unusual for a regional bank to create new branches. However, we created new branches all the way from Sapporo in the north of Japan, until the bottom south, which is Fukuoka prefecture. We basically created branches in every large city we thought would have an influence. We switched from being a regional bank to more of a national wide bank by chance. This has really been pushing our success.

Our banks have over 96% focus on personal loans. When you look at this point, we get asked: So you must not have a very strong relationship or a social economic impact on the regions that we operate? But the personal loans we give out to our customers, the actual places where they use these loans are for the local businesses. If it’s a house, obviously you are purchasing local land, you are contracting a local company to build the house etcetera. I do believe we have very strong, although indirect, impact on the areas we operate. This is the way we contribute to the economy of every region.

By supporting the enthusiasm and motivation of young people in local areas, we contribute to social economic impact on the community and it has a strong possibility of success. I think what we have learned is that, yes, contributing to social economic through personal loans is important but also supporting endeavors. This resulted in a new model in which we have increased our success.


One of the strategic policies that Prime Minister Abe has been pushing forward is to try and interlink the Japanese economy with the global market. Private sector companies are following this strategy and expanding aggressively abroad through strategical alliances and mergers and acquisitions. Do you foresee overseas expansion plans for Suruga bank?

We did have office branches in Hong Kong and New York, we had local subsidiaries, but it didn’t go very well, so by the late 90’s we closed all branches and now we are domestically focused. Actually it is not just my personal way of thinking, when you look at the Japanese culture, Japan is basically monocultural, there is no real international oriented thinking even though some people can speak English, internationalization is not very strong in the Japanese culture. Even when Japanese companies, especially in the banking sector go overseas and make these antenna shops where they are competing with local international banks, only with the language, they cannot compete. So rather than spending this money, making this new nice antenna shops overseas, we focus on actual Japanese customers. The most important part is that we really understand the needs and feelings of our Japanese consumers and how we create new opportunities within the domestic market. This is the strategy that we will continue to be doing over the next few years.


Suruga bank has been very active in promoting the sports culture in Japan. Could you tell us more about these activities?

I was a football player in high school from the age of 15. I played all the way until I was 30, so I have a very strong affinity with football to begin with. Our support for football in Japan started in 2002 World Cup which was organized in Japan. At this time I was forced to become the chairman of the soccer federation of Shizuoka prefecture. At that point this is when I started to have a deeper relationship with football. The main challenge was how to make U-15’s team stronger, so we started sponsoring the team, giving them opportunities to play with international teams. Strengthening the U-15 Shizuoka prefecture team has become a very strong program and we are very supportive of it. Football is based on a mentality of fair play and this is something we believe represents the values of our organization, internally the teamwork between our employees is very important.

On the other hand, all the Paralympic athletes are getting stronger thanks to the artificial limbs. When you look at the producer of these artificial limbs for athletes 99.9% is produced on Iceland. And there was only one athlete from Japan that was using a Japanese produced artificial limb in the past Paralympics. With the Paralympics being held in Japan in 2020, there is one company working to create artificial limbs for athletes and this company happens to be based in the prefecture where our bank originated, while this is something we are not going to be doing officially, I think by next week we are going to come to terms on an agreement on how to support this company to produce Japanese made artificial limbs for Paralympic athletes, I think this is something that is going to support the local economy.