(Bloomberg) – For years, Nobuhiro Doi has declined to call on the Bank of Japan to end its long-standing stake in its company’s clients. Now, the 68-year-old president of Kyoto Financial Group Inc. has begun to come up with the idea.
“We cannot completely ignore the increasingly demanding view of strategy holding,” Doi said in an interview with the bank’s headquarters in the ancient capital. Although he has no plans now, he is also becoming increasingly open to mergers.
With a cross preservation of about 1 trillion yen ($7 billion), Kyoto Financial symbolizes the old guards in Japan to prevent the sale of shares because it has historic links to exporters based on NINTENDO CO., NIDEC COR., NIDEC CORP. and KYOCERA CORP, and Doi still wants to invest in the sale, and he is willing to invest in it.
“We will look at reasons to hold stocks with stronger standards,” he said, referring to companies in Kyoto and elsewhere. “Some people have lost meaning to us.”
Japanese financial institutions are facing increasing pressure from authorities and investors to cut cross-equity, which is seen as a barrier to good corporate governance. In November, Kyoto Financial announced a goal to cut at least 100 billion yen of such shares by March 2029, a goal that DOI admits is not satisfying everyone.
“If we could offer numbers like 200 billion yen or 300 billion yen, that would probably be better,” he said. But we actually want to keep holding stocks.”
Kyoto Finance has long believed that retaining shares like Nintendo is desirable because they bring healthy returns to banks. While its cross-holding value may have been lowered in the recent market crash, the 1 trillion yen as of September surpassed the lender’s current market value of 610 billion yen.
DOI bears the brunt of demanding investors for bold actions. At last year’s annual shareholder meeting, the U.S. agency consulting firm institutional shareholder services recommended him to vote because the bank had a high holding in client shares. His approval rate was 75%, but other board members were elected with higher votes.
Other shareholders took a more nuanced position. Kyoto finance attracted attention when Silchester International investors called for special dividends in 2022 and 2023. At the time, Schilchester said that if the bank uses all proceeds to buy back the shares, the bank should sell its cross-equity, pointing out any huge losses from any dividend income and capital taxes. Both proposals were voted on.
Schicester recently increased its stake in Kyoto Finance to 8.5%, a regulatory filing shows.
Doi declined to elaborate on specific communication with Silchester. “Some of their views are incompatible with us, but we’ve learned all kinds of things from them, including shareholder returns,” he said.
He said some overseas institutional investors urged the bank not to sell such shares at all.
Doi’s ideas also developed on another controversial topic in the banking industry in Japan: mergers.
Now, he does not rule out the possibility of mergers with other local banks, which he once thought was unimaginable. Behind his changing attitude is Japan’s rapidly aging population, which means that the number of customers in Kyoto and neighboring areas will shrink.
“There are multiple ways to survive, and I now think merger is an option,” Duy said, stressing that banks do not have that intention at the moment.
Meanwhile, DOI said the bank could reduce its 24 trillion yen market portfolio in the fiscal year that began this month. In March 2029, the total could drop to around 2 trillion yen, mainly because the total may not be reinvested when Japanese government bonds are cashed.
Doe said the current market turmoil caused by the Trump administration’s tariff policy is one of the reasons for being cautious about new bets. But a more structural factor is that banks are seeing loan growth faster than deposits, he said.
Over the years, Kyoto and other Japanese banks have suffered warm demand for loans while raising deposits, prompting them to manage their surplus cash by investing it in their market portfolios. But this is changing as the gap between deposits and loans narrows.
These dynamics have emerged as the Japanese economy recovers from decades of inflation, despite new uncertainties in U.S. trade policy.
“Give us low loan ratios to low, and we used to have a large securities portfolio,” Doi said. “Now we are correcting that.”
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