MNI INSIGHT: BOJ Sees No Signs Credit Cost To Hit System Soon

By Hiroshi Inoue

     TOKYO (MNI) - Credit costs facing Japanese banks are rising as bankruptcies

triggered by the coronavirus outbreak increase, but the Bank of Japan sees

little sign of an imminent destabilisation of the financial system as banks --

even regional banks - have sufficient capital reserves, MNI understands.

     However, the longer the Covid-19 outbreak lasts, the greater the financing

problems for the corporate sector will become, eventually weighing on banks'

financial positions.

     The BOJ's Financial System Report released in April cited credit costs as

one of the three heightened risks facing banks during the virus crisis, along

with volatile securities investment and foreign currency funding costs.

     --MEGABANK RESERVES

     The five major Japanese banks have added a total of JPY1.2 trillion to

reserves, concerned over a prolonged economic downturn and coronavirus, although

there is still a question marks over the scale of reserves required given the

remaining uncertainties over the outbreak.

     There is also the remaining concern that the main banks can further

increase the capital base to insure against a bigger downturn, while the smaller

banks, including many regional lenders, will find it difficult to boost theirs

given tight operating margins.

     --STABLE MARKETS WELCOME

     Stable financial markets, helped by the accommodative monetary polices of

the globes leading central banks, has helped with overall financial stability,

as its prevented banks recording losses on securities, the BOJ analyses, with

the Federal Reserve's decision to buy 'fallen angel' bonds a particular help.

     That has left the economy facing exceptional downward pressure, but for now

at least tied to falling demand as consumers stay at home amid emergency

provisions, with no concerns yet that financial market concerns will add to the

problems.

     However, it remains a concern, as the BOJ warned in its latest Financial

Stability Report, when it said a prolonged economic downturn could "give rise to

a negative feedback loop between the real economy and the financial sector."

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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