Under a new scheme, Bank of Japan (BOJ), the country’s central bank, has decided to reward regional banks for mergers or slashing costs.
Regional banks that agree to consolidate or implement cost cutting measures will be exempted from negative rates by the BOJ.
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The watchdog is using the monetary policy to incentivise regional lenders in a bid to revamp Japan’s banking industry.
It is providing an extra 0.1% interest on deposits to banks with approved restructuring plans.
The banks can earn this bonus interest with one of the two options. The first option is to meet the cost cutting targets.
Lenders can submit a business plan in advance, and under BOJ’s supervision, cut their overhead to profits ratio by 3-4% to get the bonus.
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By GlobalDataBOJ has set the thresholds based on regional banks’ performance in recent years.
The second option is to agree to merge with another bank and have their business plan approved by the central bank.
The new scheme, or rather a prudential policy decision, is subject to the receipt of government’s approval. It will run for the next three years.
In a statement, BOJ said: “Financial institutions’ profitability through domestic deposit-taking and lending activities has continued to decline.
“The business environment surrounding regional financial institutions is becoming more severe due to the impact from the Covid-19 pandemic, structural factors like dwindling population and continued low interest rates.
“The BOJ decided to create a system that assists financial institutions in making efforts to underpin their regional economies.”
Recently, Japan’s prime minister Yoshihide Suga said that the country had “too many regional banks”.
