BOJ unveils scheme incentivising regional bank consolidation (updated)

Resona Holdings

10/11/2020 07:58

* BOJ to pay 0.1% interest to applicable regional banks
    * New 3-year scheme aimed at strengthening regional banks
    * Move underscores concern over Japan's banking sector
health

 (Adds details of scheme, context on Japan's banking sector
woes)
    By Kaori Kaneko and Leika Kihara
    TOKYO, Nov 10 (Reuters) - The Bank of Japan (BOJ) unveiled
on Tuesday a scheme aimed at incentivising regional lenders to
consolidate and help revitalise regional economies, a move which
echoes growing concern over the health of the country's banking
system.
    The central bank said it will introduce a special deposit
facility under which it will pay 0.1% interest on current
account balances held by regional lenders that meet certain
criteria. Interest rates are mostly flat or negative in Japan.
    "The business environment surrounding regional financial
institutions is becoming more severe due to the impact from the
coronavirus pandemic, structural factors like dwindling
population and continued low interest rates," the BOJ said.
    "The BOJ decided to create a system that assists financial
institutions in making efforts to underpin their regional
economies," it said.
    Under the three-year scheme lasting until March 2023,
regional lenders that opt for mergers or business integration
will be remunerated, the BOJ said in a statement.
    Regional lenders that also improve their financial health
such as by cutting operating costs will also be applicable for
the scheme, it said.
    The move reflects a growing concern, shared even by some BOJ
policymakers, over the rising cost and diminishing returns of
its ultra-loose monetary policy.
    Under a policy dubbed yield curve control (YCC), the BOJ
guides short-term rates at -0.1% and long-term yields at zero as
part of efforts to revitalise the economy.
    The policy, however, has added to strains for regional
banks.
    Prime Minister Yoshihide Suga has said there were too many
regional banks in Japan, signalling his desire for some weak
lenders to consider mergers or consolidation.
    Even before the BOJ's latest move, some regional banks had
already started the groundwork for consolidation.  
    Resona Holdings Inc  8308.T  said on Tuesday it would pay up
to 66.1 billion yen ($630 million) to take full control of
Kansai Mirai Financial Group  7321.T .  urn:newsml:reuters.com:*:nL4N2HW1QV

 (Reporting by Kaori Kaneko and Leika Kihara; Editing by
Christopher Cushing and Muralikumar Anantharaman)
 ((kaori.kaneko@thomsonreuters.com; +81-3-4563-2733;))