Japanese banks nationwide are prepared for April 1, when the government will remove its full guarantee on ordinary bank accounts, according to Tatsuya Ito, state minister in charge of financial services.
“Things are all set,” Ito said in an interview this week, working to assure depositors that there is nothing to worry about.
Beginning April 1, bank deposits of more than 10 million yen will not be guaranteed by the government if an institution goes under.
The move effectively marks the end of the government’s decade-long emergency measure aimed at soothing fears about fragile banks saddled with bad loans.
The guarantee was partially lifted in 2002 on some types of accounts, including time deposits.
Ito cited banks’ lowered ratios of bad loans to their total outstanding loans as the main reason for his confidence in the banking system.
The bad-loan ratio for big banks was 4.7 percent as of September, almost reaching the government-set target of halving the level seen in 2002. The ratios for smaller banks are also declining as a whole, he said.
He said there has been an improvement in banks’ disclosure of their business operations and financial health.
Depositors are expected to become more selective after the full guarantee has been lifted, and flee to stronger banks from weaker ones.
“We see this as the starting point for financial institutions to compete with each other to achieve depositors’ trust,” Ito said.
But analysts do not expect a big change anytime soon.
“It is true that the peak of financial instability is over now,” said Hideo Kumano, a senior economist at Dai-Ichi Life Research Institute. “But unless the first case of bank collapse and a cut in deposit returns happen, there may be little pressure for depositors to feel cautious about risks of financial institutions.”
Depositors can continue to enjoy full government protection if they agree to receive no interest on their deposits.
The Financial Services Agency has been encouraging banks to introduce “zero-interest” accounts used only for settlements. The new type of accounts are mainly targeted at large-scale depositors, including companies and local governments, which need to keep everyday settlements free of interruptions. About 97 percent of Japanese banks have already introduced or plan to introduce this type of account, according to the FSA.