Japan tightens profitability rules on struggling regional banks

Underperforming lenders may be requested to close down branches.

Japan’s Financial Services Agency (FSA) is introducing changes to the intervention regime that governs the country’s struggling regional banks, reports Nikkei Asian Review. The regulator is planning to expand its regulatory oversight to include future profitability in addition to current capital adequacy ratios.

Also read: Struggling Japanese regional banks go over the edge to cut losses

Through the stricter guidelines, the FSA will carry out stress tests on banks nationwide and underperforming lenders will be requested to implement measures to boost profitability, including bank closures,staff reassignments, and restraints on dividend payments.

Moreover, if the the FSA determines that a bank’s earnings crunch originates from poor governance, the bank may be ordered to introduce changes to their executive team. The FSA will also be more stringent on banks that pay out dividends that do not match business conditions or put off booking paper losses on securities in a way that produces misleading financial reports.

Also read: Japanese regional banks are carrying heavy loan burdens

In the previous fiscal year ended March 2018, nearly half (54) out of the 106 regional banks booked heavy losses in their lending, financial instrument sales and other core businesses as they struggle to turn a profit against a rapidly ageing population and ultra-low interest rates.