MNI POLICY: BOJ FSR To Warn Banks Vulnerable To Extended Virus

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan's Financial System Report due out later

Tuesday will likely show continued stability, with banks' intermediation role in

markets continuing to work smoothly, but warn that banks could be vulnerable to

a prolonged coronavirus outbreak, which could increase bad debts, and undermine

banks' solvency and credit ratings.

     The report will likely urge financial institutions to add necessary

reserves and manage risks associated with their loans in order to ensure

stability across system, MNI understands.

     --SUFFICINET CAPITAL BASES

     The BOJ will likely use the report to point out that capital adequacy

ratios have been sufficiently above regulatory levels for all financial

institutions, but will repeat that "those of domestic banks have continued to

gradually decline in recent years."

     --NO EXCESSIVE MOVES

     As for financial imbalances, the FSR also will repeat that there is no sign

so far of excessively bullish expectations in asset markets or in the activities

of financial institutions. But it will likely warn that prolonged downward

pressure on financial institutions' profits, with the low interest rate

environment and the impact of the coronavirus, could create risks of a gradual

pullback in financial intermediation and of destabilizing the financial system.

     The report also will say that the BOJ has an obligation to inject ample

liquidity in financial markets to ensure smooth corporate financing and to

maintain the stability in financial markets.

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

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