Where Local Roots Grow Big Futures

To begin on a broader, macroeconomic note: 2024 marked the official end of Japan’s negative interest rate policy, with the policy rate finally being raised to 0.5%. We are now in a world where interest rates exist once again. This shift is expected to influence various aspects of financial activity, not just for financial institutions, but also for small and medium-sized enterprises (SMEs) and the economy as a whole. Many see this as an opportunity for new growth. From your perspective, how has this change in monetary policy impacted Kiyo Bank’s business model—specifically, your banking operations, lending strategies, deposit management, and interest income?

The shift to a world with interest rates marks a major turning point in business for us as regional financial institutions. To begin with, regarding our business model, our business area spans Wakayama and Osaka. You may already be aware that we have had a strong presence in both regions for quite some time. In fact, we began expanding into the Osaka area roughly 75 years ago, and at present, the number of our operational branches is comparable between Wakayama and Osaka. So, in that sense, we’re a regional bank operating across both areas.

Management foundations of The Kiyo Bank, Ltd.

In Wakayama, we hold a dominant position—63% of businesses in the prefecture consider us their main banking partner. That’s a very high share, and it contributes to the stability of Kiyo Bank. On the other hand, while more than half of Kiyo Bank’s outstanding loans are in the Osaka area, our market share within Osaka Prefecture remains relatively low. Therefore, we believe there is room to further expand our share.

When the negative interest rate policy was introduced a decade ago, we needed to reassess how best to continue growing our business. At that time, we decided that our greatest strength—and our most meaningful contribution to the region—was in supporting SMEs. We redirected our managerial resources toward SME engagement. In essence, we made a strategic decision to specialize in supporting the core business needs of SMEs.

Over the past ten years, while interest rates declined, we steadily expanded our consulting services, business matching capabilities, and M&A support for SMEs. These non-interest-based services have significantly enhanced our earnings capabilities, allowing us to strengthen our core business even amid a challenging rate environment. Now that interest rates have finally started to rise—albeit modestly, to 0.5%— we feel that this environment provides a strong foundation for our continued growth. The earnings we’ve built through value-added services are being complemented by a gradual recovery in interest income. Together, these developments are generating a very positive momentum for us. On the retail side, we’re also actively promoting digital deposit and settlement services through our banking platform. But from a growth perspective, lending is currently outpacing deposit accumulation. We’re seeing a strong increase in outstanding loans, which is driving earnings growth, while with regard to marketable securities, we are shifting toward more stable, prudent asset management.

That’s an excellent question. In Osaka, an integrated resort facility is scheduled to open in 2030. With an initial investment exceeding 1 trillion yen and an expected annual economic ripple effect of over 1 trillion yen for the region, we believe this will have a significant positive impact on small and medium-sized enterprises and local industries. Additionally, in our service areas—Wakayama and Osaka—we are currently seeing a surge in inbound tourism. This has led to increased investment interest in the hospitality, food and beverage, and service industries. As a bank, we are actively financing initiatives related to these sectors, particularly in Osaka, where demand is especially strong.

In Wakayama, investment is more heavily centered around tourism development. We’re working on financing and supporting projects in areas such as Koyasan, the Kumano Kodo pilgrimage routes, Shirahama Beach, and Kushimoto, which recently established a rocket launch site that is garnering attention as a new tourism draw. We’re collaborating closely with local governments—both prefectural and municipal—to enhance the region’s appeal.

More broadly, to further enhance the value of the Kii Peninsula, which boasts a wealth of tangible and intangible tourism resources, we have entered into a partnership agreement titled “Collaboration for Revitalizing the Tourism Industry in the Kii Peninsula Region” with Nanto Bank, Hyakugo Bank, and Sanjuusan Bank—the regional banks of Wakayama, Nara, and Mie Prefectures respectively—and are supporting tourism-related businesses. So, when it comes to bridging international capital with local businesses, our role is both financial and strategic— we are actively investing management resources into initiatives aimed at improving regional sustainability, with the goal of building a sustainable local society.

In addition to interest rate changes, digital transformation is another major shift in the Japanese financial sector. Kiyo Bank is often cited as a pioneer among regional banks for transitioning its core systems to the cloud and launching a mobile app, Kiyo Smart App. How is this digital transformation—beyond just internal efficiency—creating value for individual customers and SMEs?

Our digital transformation is supported by a unique asset: a subsidiary called Kiyo Information Systems, in which we hold an 80% stake. This company employs about 270 IT professionals, and their expertise is central to both our internal DX initiatives and the digital transformation of our customers. Last year, we launched our “Digital Strategy 2.0,” which is built around three main pillars. First, we are working to promote digital transformation across the entire region—what we call a “whole-area DX” initiative. Second, we’re focused on advancing the sophistication of our banking operations through technology. Third, we are investing heavily in the recruitment and development of DX-capable human resources.

Digital strategy 2.0

In particular, whole-region DX is vital for us. Because Wakayama is facing a significant population decline,  improving productivity is not optional—it’s essential for enhancing  sustainability. As a regional bank, we see it as our mission to support this transition, working hand in hand with local governments and organizations.

Our subsidiary’s expertise enables us to develop tools and platforms tailored to regional business needs. For example, we were the second regional bank in Japan to move our core banking system to the cloud. We are continuously working to improve convenience for retail and SME clients by enhancing the functionality of our mobile app, Kiyo Smart App, and launching new services such as the Kiyo Business Portal. Few regional banks have the scale or IT capability that we do. Our system subsidiary even assists other regional banks in implementing the same core accounting system, BankVision, developed in partnership with a major IT vendor, BIPROGY. This collaborative framework has had a positive impact on the development and retention of our IT talent.

Are there any specific success stories you can share where your DX support helped transform an SME or regional business?

Certainly. We provide broad-based DX support for a wide range of clients, from small and medium-sized enterprises to publicly listed companies. For instance, we’ve supported publicly listed companies like Kohnan Shoji Co.,Ltd and Fuji corp.,Ltd in implementing enterprise systems. Our team, together with personnel from Kiyo Information Systems, works closely with these companies throughout the implementation process. We take a co-creation approach, offering consulting and guidance on selecting the right vendors, redesigning business processes, and even eliminating redundant operations. This hands-on support has been a key differentiator for us, and we publicly disclose some of our projects through our website and disclosure publications.

Another example is our digital management diagnostics program, which we’ve been running across Wakayama every year since fiscal 2021. We developed a simplified self-assessment tool that allows companies to evaluate their digital maturity. Every year, around 1,000 businesses in Wakayama Prefecture undergo the diagnostic program. The tool generates scores for each company and identifies specific areas for improvement, allowing us to offer targeted proposals based on each company’s digital strengths and weaknesses. We’re working in partnership on a similar initiative in Sakai City, Osaka. We have been rolling out this initiative every year since FY2023,and the goal is to systematically raise the digital literacy and operational efficiency of businesses across the region.

On a related note, we understand that you’ve also launched initiatives to support entrepreneurs—such as the Startup Debt Fund, which is aimed at nurturing new business creation. Could you tell us more about your efforts in this area?

Scene from the signing ceremony of the partnership agreement on startup support and DX promotion in Wakayama Prefecture, held on March 27, 2025 

Within our organization, we’ve established a dedicated division called the Solutions Strategy Department. This department is tasked with assisting customers in overcoming their business challenges, and currently has about 70 specialists focused on supporting SMEs through M&A advisory, business matching, and strategic consulting. Within the Solution Strategy Department, we established the Startup Support Office in October 2024, and this team is at the core of our startup support efforts.

The Startup Debt Fund you mentioned was created leveraging the initiatives undertaken by this team. We also opened a new innovation hub called “Key Site,” repurposing one of our former branch buildings located near Wakayama Station. This space is designed to serve as a collaborative venue where aspiring entrepreneurs, second-generation business owners, and startup support organizations can gather.

Exterior view of Key Site

We’ve partnered with Money Forward Group, which has a vast network of startup clients. By connecting these startups with local entrepreneurs through Key Site, we aim to stimulate new business creation within the region. Our goal is to help launch at least five successful IPOs from Wakayama within the next decade.Key Site is also functioning as a central hub that consolidates resources previously scattered across various stakeholders—local governments, banks, and public institutions. Now, anyone in Wakayama interested in entrepreneurship can find events, seminars, and support programs all in one place. Since its opening in March this year, we’ve been hosting events almost daily. There is also a café open to the general public, so if you're interested in startups, we encourage you to stop by and visit Our bank has experienced periods of unstable performance, including after the collapse of the economic bubble.Frankly, sustainable initiatives like this weren’t possible in the past. But now that our revenue base has stabilized and grown, we finally have the resources to invest in our local communities in meaningful ways.

That brings us to your financial performance. Your earnings have shown impressive, consistent growth. I believe you’re currently in your 7th medium-term business plan, and performance has already exceeded projections. You’re aiming for a record-high consolidated net profit of 21 billion yen. Could you elaborate on the strategies that are driving this level of success?

Our biggest strength, without a doubt, lies in SME banking. That’s where we’ve concentrated our efforts over the past 10 years, especially following the introduction of negative interest rates. By consolidating our managerial resources in this area, we’ve built a strong foundation.

Our Solutions Strategy Department allows us to monetize our consulting and business support services for SMEs. These services—combined with a gradual recovery in interet income—are providing a significant tailwind. Additionally, our geographical focus is a strategic advantage. Wakayama and Osaka are adjacent and well-connected, so we consider them part of a single economic zone with significant market potential in both areas. We assist clients with their core business challenges, not just financial needs, and that value-added approach strengthens our relationships with customers. And of course, our DX capabilities are another key differentiator. With the IT expertise housed in Kiyo Information Systems, our 270-person tech subsidiary, we’re in a unique position to support businesses through digital transformation, which further reinforces our business model.

Illustration of the KEY SITE cycle

A final topic—bank consolidation. We’ve seen some movement in this area, such as the recent example involving Nagoya Bank and Shizuoka Bank. Given that Kiyo Bank has previously merged with Wakayama Bank, are you currently considering further consolidation or M&A with other institutions?

At this point, consolidation is not something we are actively pursuing, but we do monitor the landscape and collect information. Across Japan, many regional banks remain. But in the Kansai region—our home territory—consolidation has already progressed significantly since the post-bubble era. Our own merger with Wakayama Bank resulted in just one regional bank for the prefecture. The same is true for Nara, Shiga, and Kyoto—each has only one regional bank. Osaka and Hyogo each have two. So, within Kansai, we believe consolidation has already advanced quite far.

For any further integration to make sense, it would need to create substantial synergies and gain the full support of all stakeholders. Without those conditions, consolidation is unlikely. That said, we are exploring various forms of alliance and collaboration where mutual benefits can be realized.

Congratulations on Kiyo Bank’s 130th anniversary. If we were to return in five years and interview you again, what dreams or goals would you hope to have achieved by then?

That’s a tough one, but a meaningful question. Our long-term vision centers around co-creating value with SMEs. That’s the foundation of our business model. At the same time, we’re committed to transforming our own organization—to always challenge ourselves with new ideas and approaches. We want to be a bank where people are highly motivated, continuously investing in themselves and in the future. As we often say: “People create the future.”

Looking ahead, we hope to enhance our presence in both Wakayama and Osaka. Currently, our main bank share in the Wakayama area stands at 63%, ranking second nationwide. Our loan share in the region is 45%. However, in Osaka, our loan share is still only around 4%. This indicates significant growth potential in Osaka, and we are making continuous efforts to increase our market share, become the main bank for more clients, and enhance our presence in the region.

Teikoku Databank, Main Bank Survey

One final question: if you had to describe Kiyo Bank in just one or two words, what would they be?

That’s a tough challenge! But if I had to choose… I’d say we want to be a company that contributes meaningfully to regional revitalization. For example, our “Key Site” initiative is the first of its kind among regional banks across Japan and serves as a representative case. We aim to go beyond traditional banking operations to support our clients and local SMEs, thereby contributing to the development of a sustainable regional society. Through these efforts, we also seek to enhance our own corporate value.

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