TOKYO >> Amid a prolonged period of ultra-low interest rates and an aging population — not to mention the impact of the coronavirus — regional banks have been struggling to maintain their earning power, and they are under increasing government pressure to reorganize.

These banks have long supported local economies. In December in Morioka, for instance, a Christmas market organized by local trading company Manorda Iwate Co., owned by the Bank of Iwate, drew about 1,500 people.

The market took place in a red brick building designed by Kingo Tatsuno, known as the father of modern Japanese architecture.

Among items displayed were the region’s traditional cast-iron wares, called nambu tekki, along with candles and scarves manufactured by local companies.

“First, we have to help local companies in our prefecture prosper,” said bank president Sachio Taguchi. “If regional strength declines, our bank cannot survive either.”

According to the National Institute of Population and Social Security Research, by 2045 the population of Iwate Prefecture will be 890,000, a decline of about 30%. To make matters worse, more than 40% of residents are expected to be 65 and older — if no measures are taken, the prefecture’s fortunes will dwindle away.

Because the central government and large national banks have difficulty understanding the challenges of regional areas, regional banks assume a pivotal role in their communities. They do not simply lend money. They analyze trends of local economies, promote local industries and foster human resources.

But regional banks have been on shaky ground since their ability to generate revenue has declined considerably. The combined net profit of the nation’s regional banks has fallen 40% in four years.

Many of these banks have fallen into a state of “excessive competition.”

“The situation is extremely bad in Sendai,” said a regional bank official in Tohoku. “There are even such cases in which a regional bank offers to its borrowers a lending rate that is close to 0%” to draw business away from main banks.

To boost their coffers, some banks have been diversifying their revenue streams.

Miyazaki Bank, for example, has sent its employees to Yumeai Farm, an agricultural corporation it established in August 2017. The farm aims to capitalize on the mild climate of Miyazaki Prefecture to grow new local specialties, including lemons, coffee and avocado. In autumn 2019, the corporation conducted its first avocado harvest, producing 500 of the fruit.

Agriculture is a mainstay in Miyazaki, but the industry faces the challenges of an aging population and a shortage of successors.

The bank’s response has been to research new cultivation methods to share with farmers. If it can increase the number of farmers, it can generate new demand for financing.