Banking on ‘To-Money’ Together

In March 2024, the Bank of Japan officially ended its long-standing negative interest rate policy, and it eventually raised the short-term rate to 0.5% in January 2025 . This marked a historic shift after years of ultra-low rates, with further hikes contingent upon economic recovery and inflation trends. As Japan enters what the BOJ has termed “a world where interest rates exist,” financial institutions are re-evaluating their role as intermediaries. In this context, regional financial groups like TOMONY Holdings have had to reconsider their funding structures, lending strategies, and customer value propositions in light of changing interest rate dynamics. How has this monetary policy shift impacted TOMONY’s core banking operations, from loan pricing to deposit behavior? What new risks or growth opportunities do you foresee for regional financial groups like TOMONY in this higher-rate environment?

Indeed, 2024-2025 has been an eventful year both globally and domestically. Japan saw the end of an unprecedented era of negative interest rates, with the BOJ raising rates to 0.5%. This has fundamentally changed the environment for financial institutions like ours.

In the past, when we were operating in a zero-interest or deflationary world, banks mainly needed to focus on managing the asset side of the balance sheet. However, in this new era of rising rates and inflation, it is necessary for us to pay closer attention not only to expanding profit margin on the profit-and-loss account, but also to both side (asset and liability) of the balance sheet with equal care.

The days when deposits came effortlessly are over. Liquidity is tightening, and banks must once again compete to attract deposits. Strengthening the financial base—by securing stable funding and managing assets carefully in an environment where interest rates impact market values—is now a key management theme.

Moreover, with rising rates, the risk of loan defaults may also increase, which can lead to a deterioration in our asset quality. Therefore, maintaining robust capital level becomes more important.  This is precisely why we decided to raise capital, even at a time when many companies were focused on share buybacks. In a world with interest rates, sufficient capital is no longer optional—it’s essential for doing business.

Let’s shift the conversation to regional revitalization, which has become a central theme in Japan, especially with the launch of the government’s “Regional Revitalization 2.0” initiative. There are three pillars to this strategy: infrastructure, finance, and human capital. With Japan’s working-age population expected to decline by 12% by 2040, and rural regions facing even sharper depopulation, what role does Tomony Holdings play in driving regional development and talent cultivation?

You’re absolutely right—regional revitalization depends on three key factors: infrastructure, finance, and the development of human resources. In rural areas, where population decline is accelerating, securing and nurturing talent is crucial.

Looking ahead to 2030, Japan’s workforce is projected to shrink by 3 million people. Considering that the workforce currently stands at around 2 million in Shikoku region, that is one of the four main islands of the Japanese archipelago, you can find this represents a significant impact ── that’s equivalent to losing 1.5 times the region’s entire.

To address this, we are pursuing two main strategies. The first is to enhance individual productivity and capability through training and development within our banks, combined with the use of DX. The second is to welcome more foreign workers, especially in sectors like eldercare and other service industries where labor shortages are most acute in terms of the regional economy.

Within our organization, we are focusing on two dimensions of talent development:

1. Specialization: Deepening specialist knowledge in areas such as financial crime prevention. For example, Tokushima-Taisho Bank has dispatched an employee to the police force to strengthen our anti-money laundering capabilities.
2. Broader Perspective: Expanding our employees’ global outlook. At Kagawa Bank, we plan to send all 300 of our sales personnel abroad over the next five years for international training.

With regards to the utilization of foreign talent, we have already welcomed over 200 care workers from Myanmar and are expanding this initiative by partnering with government-certified recruitment agencies in Indonesia to bring in a broader range of foreign talent. We are careful to respect human rights and ensure ethical recruitment practices while moving forward dynamically.

I’d also like to ask about your support for small and medium-sized enterprises (SMEs), particularly in the deeply regional areas of Shikoku such as Tokushima and Kagawa. SMEs are grappling with aging ownership, succession challenges, labor shortages, and the need for digital transformation. How is Tomony Holdings evolving its SME support strategy to address these structural challenges? Are there any particularly effective partnerships or services you’d highlight?

Before I answer, let me set the record straight with one key fact. Between 2010 and 2015—before COVID-19—the population of Kagawa Prefecture declined by 2%, yet total lending volumes in the prefecture, including ours, grew by 4%.

This shows that economic growth is possible even in the face of demographic decline if business activity remains vibrant. Nevertheless, long-term population decline will inevitably pressure the economy.  Beyond welcoming foreign talent mentioned earlier, we are focusing on providing broad support to local businesses and maintaining regional economic functionality. .

In Shikoku, the proportion of SMEs without successors is approximately 57%, around five percentage points higher than the national average. To support these businesses, we completed 82 M&A deals last year, a 40% increase over three years. We also facilitated over 1,200 business matching cases—double the figure from three years prior. Moreover we have established a new company “Tokugin Tomony Linkup”  that works on nature positivity together with local and specialized companies.

Our new company that’s about providing financing but about connecting businesses and regions to enable sustainable growth despite population challenges. We believe this also creates significant business opportunities.

To make this possible, two conditions are essential:

1. Enhancing human capital by increasing staff who can facilitate business matching, not just financial transactions.
2. Strengthening our own balance sheet to support these initiatives sustainably.

That’s an excellent point. I’d like to ask more about your balance sheet and organizational model. Some banks are adopting a “dual-bank” strategy—combining local identity with broader scale. How do you view the balance between preserving regional identity and pursuing scale efficiencies?

That’s a great question. In the U.S., despite efforts to create a single national identity, individual states retained their distinct identities. The EU also a union of nations that have maintained their sovereignty. The same holds true for regional banks in Japan. While there may be economic rationale for consolidating into a single large bank to cut costs, regions like Tokushima and Kagawa have unique identities that must be respected.

That’s why we believe it’s essential to maintain individual bank identities within a unified holding company. This structure allows us to harness both competition and collaboration within the group. Competition drives productivity, while shared knowledge and collaboration enhance overall performance.

The role of the holding company is to manage this balance—to ensure healthy competition without excessive rivalry and to encourage collaborative growth.

On a broader level, foreign direct investment (FDI) into Japan hit a record 53 trillion yen in 2023. With Japan poised to grow its presence globally, how does a regional bank like Tomony Holdings support international companies or bring overseas capital into local businesses?

There are two dimensions to this. The first is attracting foreign investment into Tomony Holdings itself. When our holding company was established, foreign ownership stood at about 8%; today it has roughly doubled. We actively engage with foreign investors and disclose as much information as possible in English to facilitate their understanding and participation.

The second dimension is attracting FDI into our regions. Each of our banks has its own business club for its clients where information and opportunities are shared. We also organize overseas business tours with our clients and conduct seminars on international expansion. Encouraging local business owners to broaden their outlook is key to increasing inbound investment.

You mentioned your foreign ownership doubled from 8% to 16%. Do you have a specific target for increasing this further? Also, do you plan to expand partnerships with overseas banks?

To be honest, as a regional bank, our primary focus remains on being supported by our local communities. We don’t have an explicit numerical target for increasing foreign investment, but we certainly welcome it and will continue to engage actively with overseas investors.

Regarding partnerships, while we observe what banks like Shizuoka Bank are doing with their cross-border networks, our client base is somewhat different—consisting primarily small scale businesses and many of them have yet overseas expansion. Our priority is first to raise their awareness and capability for international business. In future , our focus for overseas partnerships would naturally be on Asia, particularly Southeast Asia.

If you were to describe Tomony Holdings in a single sentence for this global audience, what would it be?

That’s a challenging question, but we hold two words dear: “Growth” and “Connection.” Our mission is to connect people, businesses, and regions—helping them grow together. We want every stakeholder to be able to say, “I’m glad I chose Tomony.”