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Free AccessREPEAT: MNI: BOJ Kuroda: Higher Credit Cost To Hit Fncl System
Repeats Story Initially Transmitted at 05:55 GMT Nov 19/00:55 EST Nov 19
TOKYO (MNI) - The Bank of Japan must watch with care how banks' risk-taking
activities develop in a period of prolonged easy policy and how they may
destabilize the financial system, BOJ Governor Haruhiko Kuroda said Monday.
"As downward pressure on banks' profits continues, we need to be mindful of
the possible consequences of banks' engagement in excessive risk taking," Kuroda
said at a Tokyo meeting sponsored by the Europlace forum.
"Risk taking by banks that have abundant capital bases provides financial
support to firms' production activities, thereby contributing to economic
expansion," Kuroda said.
"If appropriate risk management measures are not taken and the continued
decline in profits leads to insufficient capital bases, credit costs could rise
sharply, and the stability of the financial system could be threatened in the
event of a large exogeneous shock that leads to an economic downturn," Kuroda
warned.
The Governor also said that regional banks' core profitability has
continued to decrease amid both the prolonged low interest rate environment and
a fall in customer base due to the persistent decline in the population and the
number of firms. The regional banks' capital adequacy ratios have also gradually
decreased, he noted.
"We should be mindful of the possible consequences, including any downward
pressure on the real economy from the financial system, since financial
institutions tend to become more cautious in their risk taking if their capital
adequacy ratios fall substantially or they continue to register net losses in
the event of stress," Kuroda said.
He also said that if banks' competition intensifies on the back of
shrinking demand for credit, this will put further downward pressure on their
profits, leading to a reduction in net interest income.
--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
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.