August 24, 2018 / 9:46 AM / 3 months ago

UPDATE 1-Japan's FTC approves merger of Fukuoka, Eighteenth Bank after long review

* FTC approves merger after two-year review

* Banks agree to sell 100 bln yen worth of loans to rivals

* Banks will be monitored on rates after merger (Adds details)

By Junko Fujita

TOKYO, Aug 24 (Reuters) - Japan’s Fair Trade Commission (FTC) said on Friday it had approved the merger of two small regional banks after a lengthy review that had sparked a battle between the antitrust watchdog and financial regulators.

Fukuoka Financial Group Inc had announced plans in 2016 to buy Eighteenth Bank Ltd and combine it with Shinwa Bank, one of its units.

The FTC blocked the deal over concerns the newly-created bank would control about 70 percent of the lending market in the southern prefecture of Nagasaki.

However, the Financial Services Agency (FSA) had been promoting consolidation among regional banks to help them survive a shrinking population, particularly in rural areas.

The FTC approved the merger because the banks had agreed to sell 100 billion yen ($905 million) worth of loans to their rivals in order to reduce the market share, Masanori Fukamachi, director for FTC’s mergers and acquisitions division, told a media briefing. “Competition in the region will not be undermined if the merged banks offload loans. That would help other banks to boost their competitive pressure,” he said, adding about 20 banks have agreed to buy the loans.

The new entity will be monitored internally as well as by a third party to ensure it will not raise interest rates unfairly, the banks said in a joint statement on Friday. The FTC will monitor the loan transfers.

The steps appeared to be enough to alleviate the FTC’s concerns that the merger could limit customer choice and lead to higher interest rates. Advisers to the FSA argued that exemptions from antitrust law should be made to help the industry survive.

The newly-created bank is expected to complete offloading the loans before the merger is completed, the FTC said. If they fail to do so, the FTC will give them one more year.

Fukuoka Financial is expected to buy Eighteenth Bank in April next year. The merger between Eighteenth Bank and Shinwa Bank is scheduled to be completed in April 2020, the banks said the statement. ($1 = 110.4900 yen) (Additional reporting by Takahiko Wada Editing by Chris Gallagher and Darren Schuettler)

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