Japanese Banks Going for the Gimmicks : Deregulation: The institutions, free to set their own interest rates on accounts, prefer contests and prizes instead.

TOKYO —  The Super Dream savings lottery at Jonan Shinkin Bank isn’t exactly what the staid bureaucrats at Japan’s Finance Ministry had in mind for a new era of deregulated banking. But the one-year time-deposit accounts, with interest rates of 2.25% plus prize money of up to $500 for lucky winners, have been a big hit despite some bureaucratic frowns.

“This is a product you can have fun with,” office worker Kazuyuki Seki, 29, explained as he headed into the bank’s Ginza branch to see about putting his year-end bonus into a Super Dream account. “I’m not counting on winning.”

A nearly decade-long process of gradually freeing Japan’s banks to set their own interest rates on various kinds of savings culminated in mid-October with full liberalization on all kinds of deposits.

But banks have avoided the rough competition that would result from sharply raising interest rates to draw customers. Erupting instead is a widening contest to come up with offbeat and creative gimmicks to attract new customers without actually offering them too much extra money.

Jonan Shinkin’s lottery prizes will cost the bank the equivalent of an extra 0.2% interest on the eligible deposits, according to bank calculations. In the first five weeks after its Nov. 7 launch, the product pulled in 114,000 deposits worth a total of $1 billion, the bank said.

“In this era of low interest rates,” explained Norio Tomioka, an executive at Jonan Shinkin’s Ginza branch, “the secret of its popularity is that whether they ultimately win or not, people are buying a dream.”

Jonan’s success quickly produced imitators. Bank lotteries are now spreading like wildfire among “shinkin” banks, which are relatively small community-based banks that serve mostly neighborhood businesses and individual depositors. Most offer top prizes of $500. But some, such as Sabae Shinkin Bank, have taken different approaches: giving depositors one ticket worth $3 for the government-run “Dream Jumbo” lottery for each $1,000 put into a time deposit.

Institutions are now scrambling to outdo one another. The Odose Fisheries Cooperative in the northern town of Fukaura announced Friday that its financial arm will offer one-year time deposits with a lottery. The prize: 38.5 pounds of fish in eight varieties, delivered in four installments over a year.

In November, when controversy over bank lotteries first erupted, Jiro Saito, finance vice minister, acknowledged to reporters that Jonan Shinkin’s scheme was legal, but added: “The law is not everything.”

In what was interpreted by Japanese media as a sign of serious displeasure mixed with uncertainty about what to do, the Finance Ministry referred the issue to a study group.

The National Assn. of Shinkin Banks warned its members not to follow Jonan’s lead, and the Federation of Bankers Assns. of Japan urged its members to exercise caution on the lottery issue.

Then Japan’s Fair Trade Commission unexpectedly stepped into the fray, warning the banking associations that their actions might violate the anti-monopoly law. Newspaper editorials also weighed in on behalf of Jonan and the new lotteries.

“The Finance Ministry’s attempt to thwart the practice despite its legality was incredible in a country that supposedly is ruled by law,” declared Nikkei Weekly. “Also pitiable was the attitude of other banks.”

Jonan Shinkin fought back too. Its president, Minoru Makabe, said the national association’s rules were symptomatic of a cartel.

He told reporters that he had been planning something like this for five years but that Finance Ministry officials had asked him to hold off until interest rates were completely liberalized. Now that time has come and he would wait no longer, he declared.

“Old-fashioned ideas change,” Makabe said. “It’s important not just to provide interest or gifts, but to give customers service with a dream. . . . This has been my dream for the five years since I became president, and now my dream has come true.”

Faced with a public uproar and the counterattack by Jonan, the shinkin bank association quickly backed off. Then the banking federation formally capitulated last month by abolishing a membership rule restricting cash prizes on deposits.

Takeshi Saito, executive managing director at Fuji Research Institute, predicted that eventually the excitement about lottery deposits will fade and that the money spent on them will go instead toward raising interest rates by 0.1% or 0.2%. But banks are unlikely to get into full-fledged interest rate competition, preferring instead to keep payments fairly low and compete through innovation in creating new products, he said.

Although Jonan’s actions were long-planned, the very first to take a dramatic move in the new liberalized-banking ballgame was Hyogo Bank, based in Kobe, which came up with a different gimmick. On Oct. 17, the first day banks were completely free to set their own interest rates, Hyogo Bank drew wide media attention by offering a new five-year time-deposit account named after wildly popular baseball rookie Ichiro Suzuki.

Interest on “Ichiro time deposits” was pegged to Suzuki’s 1994 batting average of .385, which he reached in the course of setting a new Japanese record of 210 hits in one season last year. Depositors also received a baseball autographed by the 20-year-old phenom.

The 3.85% interest rate was just slightly above average for five-year time deposits, but the publicity and Ichiro’s popularity brought Hyogo Bank a windfall. In its first five days, the new account drew 11,500 customers, who deposited $85 million.

Seeing the success of the Ichiro deposits and various lotteries, the Bank of Fukuoka recently announced a scheme that will tie time-deposit interest rates to the fortunes of the Daiei Hawks professional baseball team. Deposits may be made until the start of baseball season, with maturity set for Nov. 1 on all accounts. If at the end of the season the Hawks win their Pacific League tournament, depositors will receive an extra 0.5% in interest.

“The Finance Ministry and the big banking associations were very much surprised at the creation of lottery deposits,” said Saito of Fuji Research. “They did everything for so long under tight regulations that they’re allergic to this kind of thing. But society in general lined up behind Jonan Shinkin. . . . Everything has gone exactly how Jonan wanted it to.”

Times researcher Megumi Shimizu in Tokyo contributed to this report.