Japanese bank lobby head warns BOJ against deepening negative rates
07/08/2019 03:43
* Deeper minus rate to hit entire banking sector - Fujiwara
* Bank of Nagoya head says don't expect yields to rise much
* Adds mergers and consolidation won't solve deeper problems
By Leika Kihara and Takahiko Wada
NAGOYA, Japan, Aug 7 (Reuters) - A Japanese banking lobby
head warned of the dangers to the industry if the central bank
topped up its already extreme monetary stimulus or deepened
negative interest rates, amid signs authorities may have to do
just that to support growth.
The escalating U.S.-China trade war has jolted financial
markets and triggered an unwelcome yen rise, adding pressure for
the BOJ to ramp up massive stimulus to head off risks to the
export-reliant economic recovery.
With investors' risk aversion pushing down U.S. Treasury
yields and narrowing the interest-rate gap between the United
States and Japan, a cut to the BOJ's -0.1% short-term rate
target is considered among the options to counter excessive yen
gains.
But Ichiro Fujiwara, who heads an association of Japan's
second-tier regional banks, said deepening negative rates would
add to the cumulative pain on the banking sector from years of
ultra-loose policy.
"The side-effects of such a step would be bigger and affect
not just regional banks but the entire financial industry," said
Fujiwara, who is also president of Bank of Nagoya 8522.T - a
regional bank based in the central Japanese prefecture of Aichi.
"The BOJ may say it will look at the benefits and costs of
such measures. But for us, there would be no merits at all," he
told Reuters on Tuesday.
Bank of Nagoya's home market is among the most competitive
areas for lenders operating in Japan.
Home to auto giant Toyota Motor Corp 7203.T and its parts
suppliers, Aichi has plenty of profitable borrowers unlike other
regions in Japan, which are struggling with shrinking
populations and an exodus of companies to bigger cities.
But that has intensified competition among banks flocking to
the prefecture seeking higher returns. The average lending rate
in Aichi was 1.1% in the fiscal year ended March 2018, the
lowest among all prefectures, according to research firm Teikoku
Data Bank.
Bank of Nagoya is Aichi's second largest lender but only
commands a market share of just over 10%, with more than 20
other banks and small trust associations crowding the market.
Fujiwara said he did not expect interest rates to rise much
in coming years, as overseas economic uncertainty kept the BOJ
from exiting ultra-loose policy.
That means regional banks needed to quickly come up with new
ways to compete, though merging or consolidating business with
other banks isn't necessarily the best option, Fujiwara said.
"I have absolutely no plan to do so," Fujiwara said, when
asked whether Bank of Nagoya could merge or consolidate
operations with other banks.
As with other regional banks, Bank of Nagoya needs to become
less reliant on conventional lending and grow business through
income streams like consultancy and advisory fees, he said.
"Merging or consolidating won't solve deeper problems."
(Reporting by Leika Kihara; Editing by Sam Holmes)
((leika.kihara@thomsonreuters.com; +813-6441-1828; Reuters
Messaging: leika.kihara.reuters.com@reuters.net))