Japan to require regional banks to contain bond-holding risk
Japan's financial regulator will adopt a new regulation requiring regional banks to guard against potential losses they could incur on their bond holdings from sharp interest rate swings, Reuters reported citing the Nikkei.
The step is aimed at preventing regional banks from relying too much on revenues from bond investment and nudge them into boosting lending, the paper said, without citing sources.
The new regulation, to be introduced from the fiscal year ending in March 2019, will target Japan's 95 banks that do not hold overseas operations, including Aozora Bank (8304.T), Shinsei Bank (8303.T) and Resona bank (8308.T), the paper said.
With their margins squeezed by the Bank of Japan's negative interest rate policy, regional banks have stepped up investment on assets vulnerable to interest-rate risk such as foreign bonds.
Under the new regulation, the Financial Services Agency (FSA) will issue a warning to a regional bank when estimated losses on their bond holdings exceed 20 percent of their capital, the paper said.
The FSA will also conduct hearings and if it sees any problem with the bank's financial health, it will order the bank to issue a report, the Nikkei said.