TOKYO, June 13 (Reuters) - Japan has no plan to set a one-size-fits-all rule restricting regional banks from holding government bonds, Taro Aso, minister in charge of financial regulation, said on Tuesday.
A new regulatory framework under consideration by the Financial Services Agency (FSA) will instead require regional banks to ensure they do not take on excessive interest-rate risk when extending loans or investing in government bonds, he said.
“We have absolutely no plan to uniformly restrict regional banks from holding government bonds,” Aso told parliament.
“Be it bond holdings or lending, it’s important for the banks to manage risks appropriately in doing business.”
Aso said it was inevitable regional banks would continue to invest heavily in Japanese government bonds (JGB) despite very low returns, given weak corporate demand for funding and ultra-low interest rates across the globe.
“Imposing a one-size-fits-all rule won’t work,” he said, noting that the FSA will seek ways to nudge banks into boosting lending that cater to the varying needs of each region.
The FSA will adopt a new rule for regional banks to guard against potential losses they could incur on their JGB holdings from sharp interest rate swings, people with direct knowledge of the matter have told Reuters.
The Nikkei business daily, which first reported on the planned new rule, said the measure was aimed at preventing regional banks from relying too much on revenues from bond investment and to nudge them to boost lending.
Regional banks have seen their profits hit by the BOJ’s policy guiding short-term interest rates at minus 0.1 percent and the 10-year JGB yield around zero percent.
But analysts warn of more structural problems that cloud the outlook for regional banks, such as a rapidly ageing population and a lack of promising start-ups in regional Japan.
Reporting by Leika Kihara; Editing by Eric Meijer