SINGAPORE – Mitsubishi UFJ Financial Group Inc.’s main lending unit has urged the Bank of Japan to consider the side effects of negative interest rates at next week’s meeting, saying the policy will continue to squeeze lending income.
“When it comes to margins, because of negative rates and the competitive environment, they continue to be compressed,” said Takashi Oyamada, president and chief executive officer of Bank of Tokyo-Mitsubishi UFJ Ltd., referring to net interest margin, a measure of a bank’s loan profitability.
“So overall net interest income is not likely to grow — it’s very difficult to see it increasing,” he said.
Japan’s banks have struggled to make money from lending since the BOJ announced plans to start charging fees on some of their reserves in January, a policy that has faced criticism from bank executives and lawmakers as evidence mounts that negative rates are doing little to spur growth and prices.
“It’s not that we’re in conflict with the BOJ or advocating against the BOJ,” Oyamada, 60, said in an interview Thursday during a one-day visit to Singapore.
“Negative rates over a long period of time would have some intended effects such as creating real demand and rebalancing portfolios. But there’s also side effects, so we would like the BOJ to look closely and meticulously at what the side effects are and how they manifest themselves.”
Loan growth in Japan remains “resilient” in a range of 2 percent to 3 percent even though the economy is barely expanding, said Oyamada, who became CEO in April. Net income at Tokyo-based MUFG, Japan’s biggest lender, fell 32 percent in the three months ended June 30 from a year earlier to ¥188.9 billion ($1.8 billion) as lending profit shrank.
BOJ Gov. Haruhiko Kuroda acknowledged this month that the negative-rate program has hit profits at financial institutions, but said it hadn’t hurt bank lending. MUFG President Nobuyuki Hirano criticized the policy in a speech in April, saying it has contributed to anxiety among households and companies and prolonging it may weaken lending profits.
Oyamada said MUFG is dealing with the pressure negative rates place on profitability by focusing on growth areas such as asset management and by continuing to boost earnings overseas.
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