Markets Exchanges,Mergers and Acquisitions,Transaction Banking,

Markets Exchanges,Mergers and Acquisitions,Transaction Banking,

Japan's Sumitomo Mitsui Financial Group Inc (SMFG) and Resona Holdings Inc said they have agreed to combine their regional banks in the face of tough market conditions that are widely expected to worsen.

The pair plan to set up a holding company for their three regional banks, they said in a statement. The holding company will be a consolidated subsidiary of Resona, they said.

The total assets of the three banks - SMFG's Kansai Urban Banking Corp and Minato Bank Ltd, and Resona's Kinki Osaka Bank - was 11.4 trillion yen ($99.88 billion) at end-March last year.

For SMFG, Japan's third-largest lender by assets, having low-profit regional banks has become costly as it has to take their standing into account when meeting stricter global bank capital requirements.

SMFG said separately it would sell 37.2 million of its own shares in a secondary offering.

There are just over 100 regional banks in Japan. They have suffered from ultra-low interest rates for years, and face the prospect of a rapidly aging population weighing heavily on local economies.

In an unusually frank call for bolder steps to deal with the crowded regional banking sector, the governor of the central bank recently said mergers and consolidation may be among options for financial institutions to boost profit while interest rates are so low.

Japan's biggest lenders are disposing of regional banks to shift resources to more profitable businesses such as overseas loans.

In 2015, Mitsubishi UFJ Financial Group Inc agreed to sell Osaka-based Taisho Bank to Tomony Holdings Inc, a banking group based in the western island of Shikoku.

Re-disseminated by The Asian Banker from Reuters