Special Feature : One-on-One Interview Page 3
We invited Mr. Hironari Nozaki, Managing Director of Citigroup Global Markets Japan Inc., to have a conversation with Mr. Toma, President and CEO of Shinsei Bank, on the overall assessment of the First Medium-Term Management Plan and notable aspects of the Second Medium-Term Management Plan. Mr. Nozaki is a top analyst of the banking sector.
Important points of the Second MTMP :
Creating synergies through the integration of operations
Nozaki: Now, let's go back to the MTMP. Can you tell me if there are any points in the Second MTMP that you particularly want us to pay attention to?
Toma: There are points in both the retail business and institutional business, but I will first talk about our retail business.
Our retail business consists of three main operations. The first is retail banking, the second is installment sales credit, credit cards, and settlement services offered mainly by our consolidated subsidiary, APLUS Co., Ltd., and the third is consumer finance. Although these were in the same Group, they were run separately. I have always wondered why they were operated separately since I came to the Bank. There had been talk that these businesses would be operated using a bank model, but it wasn't actually happening. Shinsei Bank Card Loan-Lake is currently using many advertisements using Nanao-san as their image character. Their website is excellent because they have accumulated experience.
For instance, they say it attracts much more attention if there is a character advertising products rather than just having letters and photos on the screen. We never thought like that in the Bank. If you look at advertisements in bank branches, they are not easy to understand because there are so many things written on them.
I tell my staff that it is better to ask experts with experience to do these kinds of jobs. If we integrate such marketing methods among the three operations, it will greatly improve our efficiencies.
Nozaki: You are saying, "Let people do what they can do well."
Toma: We didn't use to think this way at all. That is why we decided to integrate these three operations. I would like to challenge what kind of synergies we can have as a result. Our target is to increase our core customers to 5 million. However, it is meaningless just to increase the number of accounts from the current 2.5 million to 5 million. It has to be achieved with substance.
Our definition of core customers is the customers who can freely use services offered in these three major operations according to their needs. We have nearly 10 million customers in our retail banking business, APLUS, and consumer finance altogether. If we integrate the three operations, cross-sell them, and create enticing incentives, we should be able to achieve 5 million core customers soon. Also, we will have more ideas. Cross-selling will rationalize our operations.Instead of forcing customers to come to us, if we can have 5 million customers choosing to use our products and services, this must be the truest form of customer satisfaction.
In our corporate banking business, we would like to provide financing to projects and cash flows instead of adopting the old-fashioned approach to lending. We would like to do this in newly emerging markets. We would like to focus on developing an entire industry that is to be born in the future. In the U.K. there are many precedents of private finance initiatives (PFI) where private funds and technologies are used for the construction, maintenance, and management of public facilities.
Much thought has been given to the structure for using PFIs, and they have a well developed legal system. We would like to bring something like this to Japan, and create a sound market to expand it.
Nozaki: Certainly, PFI is actively used in the U.K., but they have a different legal structure, and in the case of Japan, laws on PFI haven't yet been developed. It might be a good idea if Shinsei Bank, together with the government, reforms PFI to make it easy to use.
Toma: Because Shinsei Bank used to be a long-term credit bank, we had many discussions with the government about the structure of the financial market in the past. If we can be of any use in this sense, we would love to do that. We want to be pioneers. Because we can't beat other banks in terms of size, we need to focus on areas such as this.
Nozaki: In other words, to gain the first-mover advantage, you probably would like to start from creating business. On the other hand, other banks are likely to turn their attention to growth areas such as renewable energy, medical services, and nursing care. What do you think is the strength of Shinsei Bank?
Toma: It's our speed. I can say this with confidence. Also, we take the initiative, rather than passively waiting for business. I think we can easily compete with other banks using these strengths.
Nozaki: I think Shinsei Bank runs very efficient operations. However, your networks and human resources seem smaller than those of other banks. In this situation, is there anything that you can add to your management resources that would accelerate your organization's growth?
Toma: As you pointed out, we are inferior to other banks in many aspects including networks and human resources. It means we can't do everything by ourselves. One of the elements that could make up for this situation is the creation of networks. For instance, we can cooperate with universities and think tanks. We are also putting much effort into creating cooperative relationships with regional banks.
I think there are currently two approaches to the economic rehabilitation of Japan. The first is deregulation, and the other is regional rehabilitation. For the latter, we launched the Fukushima Growth Industry Development Fund in October 2012. The original idea was to make a fund to invite companies in all types of industries to Fukushima Prefecture, instead of creating a kind of disaster recovery fund created by regional banks or megabanks.
The fund's theme is for companies in all kinds of industries to merge together to create distinctive industrial clusters* in order to make an independent society. We would very much like to achieve this goal and to create a formula for success.
- *A situation where industries are gathered in large areas with competitively advantageous industries as a core, through which develops a business environment in which new businesses are created one after another (from the website of the Ministry of Economy, Trade and Industry)
Nozaki: Regional financial institutions may be concerned that their business opportunities might be snatched away if they do business with megabanks. In that sense, it may be easier for them to do business with Shinsei Bank. Looking back at the way you have made partnerships with regional financial institutions in the past, however, although you have engaged in the white label business where Shinsei Bank developed products and services such as structured deposits and offered them to regional financial institutions to market them to their retail and corporate customers under their own brands, you haven't conducted businesses where you shared problems faced by regional areas.
Toma: Unfortunately, our Bank did not hold such a vision before.
I expect the next ten years will be a very tough time for regional banks. Their investment operations will continue to face a difficult environment if the situation stays as it is. In addition, we cannot say that the current situation where they can collect ample deposits, while having problems investing them, will continue in future. I think they need to strengthen and diversify their investment operations now while they have ample deposits, in order for them to establish their identity. For Shinsei Bank, we can perhaps suggest making investments together through our partnerships. I'm not sure how many regional banks will agree and get together with us, but if, for instance, we can form a partnership with 20 to 30 regional banks to finance overseas projects using surplus funds, we should be able to get a reasonably good return on our investment.
As you said, they may feel more comfortable doing business with us, but I think we need to create a better track record helping them in their main business so that we can have longterm relationships.