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Japan’s regional banks face stress test for ultra-low rates
Japan’s more than 100 regional banks account for around 40 percent of the country’s $4.6 trillion in outstanding loans
Tokyo: Japan’s financial regulator is running stress tests to see if too much cash in the system is stifling smaller banks’ ability to earn, unlike regulatory tests elsewhere that have been designed to see whether lenders had enough capital to cope with financial shocks.
Two people with direct knowledge of the process said the Financial Services Agency (FSA) had initiated the tests on concerns that with 10-year Japanese government bond yields near a record low around 0.3 per cent, regional lenders in particular could be at risk as the gap between what they pay for deposits and what they collect on loans and bond holdings shrinks.
The FSA told Reuters: “As a general matter it is important for financial institutions to have the ability to respond to changes in the operating environment, including changes in interest rates. That applies beyond regional banks. We cannot comment on any specific or individual matters beyond that.”
Japan’s more than 100 regional banks account for around 40 percent of the country’s $4.6 trillion in outstanding loans, but overall loan demand has shrunk 10 per cent over the last 20 years.
Such banks, which typically serve smaller businesses, have seen lending fall as Japan’s population ages, and many have cut the interest rates they charge to win business.
For over a year, the FSA has been urging regional banks to consolidate or seek customers abroad.
Japan’s second-largest regional lender, Bank of Yokohama, said last month that it was considering a merger with Tokyo-based Higashi-Nippon Bank Ltd in a potential deal that analysts said could spur consolidation.
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