Ready, Set, ACT: A Moving Financial Force

To begin, Japan’s recent shift away from a prolonged period of negative interest rates marks a major turning point in the country’s financial landscape. This normalization of monetary policy, along with changing market sentiment, has prompted financial institutions to review and realign their business strategies. For regional banks like yours—whose primary customers are small and medium-sized enterprises (SMEs) and whose portfolios include a large proportion of loans and securities—this change may represent both an opportunity and a challenge. On one hand, it could lead to the recovery of interest margins; on the other, it may raise issues such as the need to rebalance assets and liabilities and manage valuation risks for securities holdings. Given this shift, how has the change in Japan’s monetary policy affected Saikyo Bank’s core operations—particularly in terms of loan pricing, deposit management, and maintaining stable income?

One immediate effect of rising interest rates is positive for us: our income from interest-bearing assets increases, which temporarily enhances our profitability. However, there is a downside that we must carefully manage. Because our bank prioritizes the safe and stable operation of funds, much of our portfolio consists of bonds and other secure instruments. As you know, when interest rates rise, bond prices fall, which creates the potential for unrealized losses. Managing that balance is a key challenge for us moving forward.

Turning to the regional economy, Yamaguchi Prefecture—where your bank is headquartered—faces significant demographic challenges, with a rapidly declining and aging population. Many SMEs are struggling with both short-term labor shortages and, in the longer term, shrinking domestic markets. How is Saikyo Bank addressing these issues?

You’re absolutely right—Yamaguchi Prefecture’s declining and aging population presents a critical issue. Many of our client companies face two main challenges: in the short term, a shortage of workers, and in the medium to long term, a contraction of their customer base. However, Yamaguchi also has unique strengths. Along the coastal areas, we have a concentration of chemical complexes—industrial clusters that include many firms with exceptional technical capabilities, such as tank fabrication, piping, and industrial installation. We believe these highly specialized skills can find new life and new markets abroad, particularly in Southeast Asia, where populations and economies are still growing.

While Japan’s domestic market will inevitably shrink, there is great potential for our local SMEs to expand overseas and apply their expertise in emerging markets. To support this, Saikyo Bank is partnering closely with local companies to help them explore international business opportunities.

Could you elaborate more on the partnership model you are implementing in Indonesia and how it helps both the companies and the workers involved?

Certainly. Addressing the labor shortage is essential. One of our key initiatives is a partnership with Indonesia. We invite Indonesian trainees to work at local companies in Yamaguchi for three to five years, during which they learn technical skills. When they return home, those same SMEs can establish subsidiaries in Indonesia, employing their former trainees and expanding their operations there. Indonesia allows 100% Japanese ownership of local subsidiaries without the need for joint ventures. This makes it an ideal partner. Through this model, we are helping companies solve two problems simultaneously: mitigating domestic labor shortages and developing new overseas markets. We believe this “learning and returning” cycle creates sustainable, mutually beneficial growth for both sides.

Signing Ceremony between World HORENSO (Indonesian Government-Certified Human Resources Dispatch Organization) and Vocational High School

That is a fascinating approach. Beyond Indonesia, are you considering implementing similar models in other regions, such as East Asia or Africa?

Our immediate focus is on making the Indonesia model a success. Among ASEAN countries, Indonesia has the largest population and market size, so it’s where the potential impact is greatest. Once we’ve achieved tangible results there, we’ll look to apply the lessons learned to other regions. That said, our approach in Africa will be somewhat different. Rather than supporting SME expansion as in Southeast Asia, we view Africa—particularly countries like Kenya—as an emerging investment frontier. There, our strategy will focus on venture investment and supporting startups with strong growth potential. In short, our Southeast Asian strategy centers on SME growth and overseas business support, while our African strategy focuses on direct investment and innovation. Both align with our broader vision of sustainable growth, but they operate through distinct models.

You mentioned earlier that banking itself can be considered an IT business. Could you elaborate on that idea, and explain how Saikyo Bank is integrating digital transformation (DX) into its business strategy?

We believe that banking is, at its core, an information technology business. Every product and service we offer exists only within digital systems—there is no physical form to a loan, a deposit, or a transaction. For that reason, we see IT and DX not as support functions, but as the very foundation of our business.

About three years ago, we made a key strategic shift: we decided to internalize all IT functions and capabilities. In other words, rather than outsourcing, we began developing our own IT systems in-house. This has allowed us to accumulate deep technical knowledge and build expertise within the bank itself. We are now leveraging that know-how to help local SMEs in Yamaguchi with their own DX initiatives. The need is substantial. As I mentioned earlier, the prefecture faces both a shrinking population and an aging workforce. Digital transformation is not optional—it’s essential for addressing chronic labor shortages.

Another factor is that Yamaguchi’s relatively small market scale makes it unattractive for large IT vendors, which means local companies are often left without adequate digital support. As a local bank, we see it as our responsibility to fill that gap.

Capital and Business Alliance Signing Ceremony with Nakamori Agricultural Products Co., Ltd. to Address Labor Shortages in Agriculture in Yamaguchi Prefecture

Could you share some specific examples of the DX support services Saikyo Bank provides to SMEs?

Certainly. One area of strong demand is digital marketing and recruitment. Many SMEs need to modernize how they promote their products and attract young talent. We build websites, manage social media platforms such as Instagram, and design integrated online strategies for marketing and hiring. To date, we’ve provided these services to over 100 local companies. Another example involves internal management systems. Large corporations can afford expensive CRM tools like Salesforce, but most SMEs cannot. Many still rely on manual paperwork for daily reporting, order management, contracting, and billing. We’ve developed affordable, lightweight systems tailored to SMEs’ needs to streamline these processes.

Let’s turn to your environmental initiatives. Saikyo Bank has made significant efforts toward supporting CO₂ reduction and SDG-related goals among local companies. Could you tell us more about your activities and any notable success stories?

Yamaguchi Prefecture is home to numerous large chemical plants, which are major CO₂ emitters. These companies are under increasing pressure from the government to reduce emissions by 2030. Many of our client firms are Tier 1 or Tier 2 suppliers to these major manufacturers, so they too must prepare to meet emission reduction targets. However, for SMEs, making such changes quickly is difficult. They need time and expertise to plan and implement effective measures.

That’s where we come in. We help our clients develop CO₂ reduction plans and broader sustainability strategies, including paperless office initiatives, energy efficiency improvements, and cleaner production processes. We’ve already supported more than 100 companies in creating such plans. SMEs in regional areas often lack dedicated sustainability staff, so banks like ours must play an active role. We see it as part of our mission to lead and guide our community in building a more sustainable future.

Population decline also poses serious challenges for business succession. What is Saikyo Bank doing to address this issue, particularly in industries like agriculture and nursing care?

Business succession is indeed a pressing issue, especially in two sectors—agriculture and nursing care. In agriculture, the situation is critical. The average age of farmers in Yamaguchi is in the late 70s, and about 80% have no successor. To prevent the industry from collapsing, our bank has partnered with an agricultural startup in Tokyo to create a joint company. We provide both the personnel and the financing needed to sustain and modernize agricultural operations. We’re taking a hands-on approach, not just financing but also facilitating new business models. Nursing care is another essential sector under pressure. Many small-scale care providers are financially struggling, yet they form the backbone of the region’s social infrastructure. With Yamaguchi’s aging population, the demand for care will only continue to grow.

While banks cannot directly provide care services, we are helping to strengthen the sector in two ways. First, we support mergers and acquisitions among care providers to consolidate operations and build more sustainable business structures. Second, we provide back-office outsourcing services—handling payroll, financial management, and other administrative tasks. We currently provide such services to over 20 facilities, allowing them to reduce costs and focus on care quality.

Announcement Event for the Establishment of the Saikyo Innovation Fund

I’d like to return to your innovation and investment activities. Saikyo Bank’s Saikyo Innovation Fund aims to connect local SMEs with startups from across Japan and overseas. What is the vision behind this initiative?

The population decline in Yamaguchi is not unique—it’s a challenge that much of Japan, and indeed the world, will soon face. In that sense, Yamaguchi is at the forefront of a global demographic shift. We see this not as a disadvantage but as an opportunity. Solving the challenges of Yamaguchi today could generate business models applicable worldwide.

Our goal is to invite startups—from Tokyo, Osaka, other parts of Japan, and even abroad—to come to Yamaguchi, tackle these real-world issues, and develop scalable solutions. If their ideas succeed here, they can export those models globally. We tell entrepreneurs: “Come to Yamaguchi, use our region as your testing ground, solve real challenges, and then bring your innovations to the world.” We also recognize the high level of technical expertise among local SMEs. By connecting them with external startups through our fund, we can spark new collaborations that generate value and solutions for regional revitalization. Importantly, this fund is not owned solely by Saikyo Bank—it’s a joint initiative with about ten local SMEs, allowing co-investment and partnership between local and external innovators.

Collaboration seems to be a recurring theme in your initiatives. Looking ahead, how do you envision working with other regional banks across Japan?

In the field of M&A, we’ve traditionally focused on succession within Yamaguchi Prefecture—matching companies lacking successors with other local buyers. But that model has limits. We now aim to expand cross-regional collaboration with other regional banks across Japan. For instance, a Yamaguchi-based company might acquire a firm in Shizuoka, or a business from Nagano might acquire one in Yamaguchi. Such “cross-border” domestic M&A can help break down Japan’s long-standing regional isolation. By fostering this kind of inter-prefectural collaboration, we can revitalize local economies, enhance SME productivity, and ultimately strengthen Japan’s regional industries as a whole.

Finally, our magazine reaches readers in 59 countries across North America, Europe, Africa, the Middle East, Asia, and Oceania. If you were to convey the essence of Saikyo Bank’s vision in one sentence to global leaders, entrepreneurs, and students, what would you say?

In Japanese, there is a saying: “Henka wa henkyō kara okoru”—“Transformation begins at the periphery.” True change often starts in small, unheralded places. Yamaguchi, historically known as the Chōshū domain, played a pivotal role in Japan’s Meiji Restoration—transforming Japan from a feudal society into a modern nation. That spirit of reform from the margins continues to define us today.

We believe that new movements, new ideas, and new possibilities emerge not from the center, but from the edges—from local regions with the courage to innovate. At Saikyo Bank, we aim to be a catalyst for that transformation, proving that even from a small corner of Japan, global change can begin.

For more information, visit their website at: https://www.saikyobank.co.jp/