Business

Tuesday March 17, 2009

BoJ ponders buying subordinated debt


The move is intended to bolster Japanese banks’ capital

TOKYO: The Bank of Japan (BoJ) is considering purchasing subordinated debt issued by banks to help bolster their capital, the Nikkei business daily said yesterday, in a move to contain the fallout from the global financial crisis.

Such steps would come at a time when countries globally are striving to shore up banks’ capital and limit the impact of toxic assets, in hopes of stemming the financial crisis that has engulfed economies worldwide.

The Nikkei, citing unidentified senior BoJ officials, said the central bank had already begun compiling measures to support banks’ capital and might work on details within the month.

The BoJ was considering underwriting subordinated loans and bonds for banks, the Nikkei said, adding that such a move would be highly unusual for a central bank and would likely require government guarantees to make it feasible.

Japanese banking shares climbed after their US peers rallied last week, with Japan’s banking sub-index climbing 6%, outperforming the benchmark Nikkei share average, which rose 2.3%.

“It’s not a plan that will drive the market sharply higher, but it will prevent selling if the market starts to fall again,” said Masayoshi Okamoto, head of dealing at Jujiya Securities.

The Nikkei report came ahead of the BoJ’s two-day policy meeting that ends tomorrow. The central bank is seen likely to keep interest rates unchanged at 0.10% at the meeting.

Falls in Tokyo share prices have put a strain on banks’ capital adequacy ratios. The BoJ was concerned that banks’ declining capital ratios, if left unchecked, could lead to a fall in lending to businesses and deal a further blow to Japan’s recession-hit economy, the Nikkei said.

In an effort to reduce banks’ exposure to falling stock prices, the BoJ unveiled a scheme in February to buy up to one trillion yen (US$10.2bil) in shares held by banks, dusting off a scheme it ran from 2002 to 2004 amid a domestic banking crisis.

The central bank has also taken various steps to help improve corporate financing, including conducting outright purchases of commercial paper and corporate bonds.

Separately, Japan’s regulatory Financial Services Agency said last week it would inject 121 billion yen into three regional lenders, Sapporo Hokuyo Holdings Inc, Minami-Nippon Bank and Fukuho Bank Ltd. — Reuters


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