REPEAT: MNI: BOJ Kuroda Urges Asian Firms To Diversify Funding

--Repeating Story Published at 1036 JST (2036 ET)

     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 90-4670-5309; email: max.sato@marketnews.com