**Japanese Banks Reconsider Cross-Shareholdings Amid Pressure**
In a significant shift, Nobuhiro Doi, the 68-year-old president of Kyoto Financial Group Inc., is beginning to embrace the idea of Japanese banks moving away from the traditional practice of holding shares in their corporate clients. In an interview at the bank’s headquarters in Kyoto, Doi acknowledged the growing pressure to reassess these strategic holdings, stating, “We cannot completely ignore increasingly demanding views toward strategic holdings.”
Kyoto Financial, which has approximately ¥1 trillion ($7 billion) in cross-shareholdings, has long been emblematic of Japan’s old guard, maintaining ties with major exporters like Nintendo Co., Nidec Corp., and Kyocera Corp. While Doi remains committed to retaining investments in these technology giants, he indicated that other holdings are now under scrutiny for potential divestment. “We will examine the justification for holding the shares with tougher standards,” he noted, emphasizing that this review applies to both local and non-local companies. “Some have lost meaning for us to keep.”
Japanese financial institutions are facing increasing demands from regulators and investors to reduce their cross-shareholdings, which are often viewed as obstacles to effective corporate governance. In November, Kyoto Financial announced a goal to cut at least ¥100 billion from its cross-shareholdings by March 2029, a target Doi admits may not satisfy all stakeholders. “It might be better if we could give numbers like ¥200 billion or ¥300 billion. But we actually wanted to keep holding shares,” he explained.
Historically, Kyoto Financial has defended its strategy of retaining stakes in companies like Nintendo, citing the healthy returns these investments generate. Despite a recent decline in the value of its cross-holdings, the ¥1 trillion held as of September still surpasses the bank’s current market capitalization of ¥610 billion.
Doi has faced significant pressure from investors advocating for more decisive action. At last year’s annual shareholder meeting, the US proxy advisory firm Institutional Shareholder Services recommended voting against him due to the bank’s substantial holdings in client shares. Although Doi’s approval rating stood at 75%, other board members received significantly higher votes.
Some shareholders have taken a more nuanced approach. In 2022 and 2023, Silchester International Investors called for special dividends, suggesting that any sale of cross-shareholdings should be used entirely for share buybacks, highlighting the potential loss of dividend income and capital gains taxes. Both proposals were ultimately rejected, but Silchester has since increased its stake in Kyoto Financial to 8.5%, according to regulatory filings. Doi refrained from discussing specific communications with Silchester, stating, “Some of their views are incompatible to us, but we have learned various things from them.”
As Kyoto Financial navigates these challenges, the future of cross-shareholdings in Japan’s banking sector remains uncertain, with potential implications for corporate governance and investment strategies.
**FAQ**
**Q: Why are Japanese banks being pressured to reduce cross-shareholdings?**
A: Japanese banks are facing pressure from regulators and investors to reduce cross-shareholdings as they are seen as barriers to effective corporate governance and transparency.
