Japan may inject cash into regional banks to boost liquidity: report
07 Jan 2009
The Japanese government is weighing options of injecting cash into a number of regional banks, according to a report in the Mainichi newspaper.
The report, at least temporarily, hiked the value of the shares of small banks like Tokyo Tomin Bank even though other reports citing unnamed government officials refuted the report.
The Mainichi report said that the Japanese government could possibly give out funds to over 40 local banks in order to boost their capital positions and make them more willing to lend. The report said the move was to beef up the capital adequacy ratio of the regional banks to around eight per cent from a low of around four per cent, and that the funds would be injected by around March.
On the other hand, news agency sources cited unnamed senior government officials as saying that the government was not planning a broad injection of public funds.
The Japanese government recently eased rules to encourage local banks to apply for public money. The smaller regional Japanese banks are heavily dependent on increasingly fragile regional economies, and have become increasingly wary about lending since the economic downturn started. They have also taken hits in terms of rising bad loans, and a shrinking base of customers, besides losses from exposure to the lacklustre domestic stock market, reports said.
The Mainichi report said that the Financial Services Agency (FSA) estimates the plan as feasible within an existing public fund framework of about 2 trillion yen ($21.4 billion), which would easily allow an injection of 10 billion yen into each bank.
Shares of many small banks jumped in Tokyo trade on the news. Bank of Yokohama, which is Japan's largest local lender, gained 4.1 per cent at 534 yen, while the smaller Aozora Bank, which does business with a number of regional banks, rose 1.2 per cent to 82 yen. Tokyo's index of bank stocks ended the morning with a gain of 1.7 per cent.
Japan, like other major economies of the world, has cut interest rates and promised higher spending in an effort to haul itself out of recession, a phenomenon plaguing economies across the globe.