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Free AccessMNI: BOJ Kuroda Urges Asian Firms To Diversify Funding Sources
TOKYO (MNI) - Bank of Japan Governor Haruhiko Kuroda Tuesday urged the
corporate sector in Asia to reduce its heavy reliance on bank loans and
diversify their funding sources so they can better prepare for economic or
financial shocks.
"Local currency bond markets have grown over the last 20 years [since the
Asian financial crisis of 1997-98]. At the same time, bank financing still
dominates as a primary source of funding in the region," Kuroda told the annual
general meeting of the Asia Securities Forum.
"I would rather like to stress the importance of diversifying the sources
of funding to reduce the direct effects on the corporate sector, should the
banking sector face economic or financial shocks."
Kuroda was a senior Ministry of Finance official in charge of international
affairs at the time of the Asian financial crisis. Later, he headed the Asian
Development Bank for eight years until 2013, when he left the job to become the
BOJ governor.
"Developing highly efficient and liquid local currency bond markets is
essential," he said. "Past initiatives in the region have enriched the primary
markets. We may therefore need to put more focus on developing liquid secondary
markets."
He also noted that there is no single factor that inhibits the development
of the secondary markets in the Asian region, citing a survey conducted by Asian
Bond Online.
However, Kuroda said the recent survey showed that "greater diversify of
investors" was the most important structural issue for promoting the market
liquidity.
"Since banks are the dominant financial institutions in the region, they
are often the largest investor group as well. The presence of buy-and-trade
investors like mutual funds, and active investors like hedge funds is relatively
low, and this may be one of the causes of low liquidity in the secondary
market," he said.
Kuroda said it is important to increase the variety of investor types,
attracting those who have different investment objectives and strategies.
In addition, it is necessary to develop repo markets, which are "a key
instrument for banks to trade cash while controlling counterparty risks."
Repo transactions in many Asian emerging markets are still restricted or
small in transaction volume, as uncollateralized short-term funding conditions
are easy and many investors do not have the incentive to use such instruments,"
Kuroda said.
He stressed the importance of developing local currency bond markets as it
makes possible for governments and firms to borrow in local currencies as longer
maturities.
"This will reduce the risks associated with currency and maturity
mismatches," he said. "The development of such bond markets will enable
borrowers to diversify their sources of funding by complementing bank-financing.
At the same time, investors will gain more investment opportunities."
Kuroda also said, "Well-functioning primary and secondary bond markets
reinforced by an expanded investor base will improve the overall efficiency of
financial markets, which in turn will aid macro-economic policy implementation."
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com
[TOPICS: MAJDS$,MMJBJ$,M$A$$$,M$J$$$,M$$FI$]
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.