MNI POLICY: BOJ Won't Take Credit Risk On New Loan Facility

-- BOJ Hopes Added Rate For Commercial Banks To Ease Risk Fears

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan will not take any credit onto its own book

for loans extended by commercial banks under new lending schemes, but believes

the payment of a small interest rate above the rate banks can borrow funds will

help get them to extend credit to firms in need of funds.

     BOJ officials are still trying to work out the fine details of the new

lending facility, including whether or not to set an upper limit of the new

scheme, to lower the loan-to-value ratio or to include bridge financing that is

underpinned by the Financial Services Agency.

     The FSA has been urging financial institutions to support smaller firms

through bridge financing as it takes some time for them to gather the paper work

to apply for credit guarantee loans and the BOJ is n ow considering bringing

that scheme into the new facility.

     Financial institutions are examining eligible loans after accepting

applications from struggling smaller firms hit by the spread of the coronavirus,

forcing stores to close and slamming the brakes on spending.

     Under the existing conditions, the BOJ cannot grasp the scale of actual

loan demand immediately and bank officials are surveying financial institutions

to examine demand for the new lending facility.

     The BOJ has already said that the interest rate on loans under the new

scheme will be zero percent, adding it will pay 0.1% interest to banks' on the

balance of all loans extended to companies, which it hopes will overcome any

credit and rising credit cost concerns lenders have

     --SOLE PROPRIETOR

     BOJ Governor Haruhiko Kuroda has said that the BOJ may consider

incorporating loans to sole proprietors into the new lending facility and the

bank may hold an early policy meeting to get the new facilities in place

quickly.

     The BOJ want to get lending to sole proprietor and smaller firms that will

benefit from zero guarantee fees and zero interest rates as based on the target

requirements set by the government, with loans to be up to JPY 30 million in

size and for up to 5 years in length.

--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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