• Kyodo

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The Bank of Japan said Tuesday it will provide additional interest on the balance of current account deposits held by regional lenders at the central bank if they reorganize in response to impacts of the novel coronavirus or reduce their overheads.

Under the three-year program through fiscal 2022, regional banks and smaller, community-focused shinkin banks will receive an additional 0.1% interest on their current account balances if they decide to merge with others or integrate their businesses.

The new program is in line with Prime Minister Yoshihide Suga's call for regional banks to reorganize. Suga has said there are too many such lenders in a rapidly graying Japan.

The central bank's move is widely seen as a measure to help regional lenders merge and survive amid slumping local economies hit hard by the coronavirus pandemic.

The BOJ calculates it would pay up to ¥50 billion ($476 million) a year to regional lenders if all of them apply for the planned program.

Japan has about 100 regional banks. The number of shinkin banks came to 255 as of March.

The BOJ said it will also provide the special interest in the three-year period if regional lenders improve their financial health to some extent based on the overhead ratio — the ratio of overhead costs to gross operating profits — compared with that in fiscal 2019 that ended in March.

"The program independently introduced by the BOJ aims to strengthen the stability of the financial system," said Hirohide Koguchi, director general at the BOJ's Financial System and Bank Examination Department, at a news briefing.

While denying that the BOJ employed the new program under pressure from the government, Koguchi said, "We share the view with the government that it is important to strengthen the financial bases of regional banks."

The program is expected to improve regional banks' business environment as they could be exempted from the BOJ's current negative interest rate policy, adopted in January 2016, which forces them to pay 0.1% interest to the central bank on some portion of their current account balances held at the BOJ.

"We expect regional banks to act proactively, which could lead to the stability of the overall financial system," Koguchi said, urging the banks to avail themselves of the program.

Takahide Kiuchi, a former BOJ Policy Board member, said the program is apparently aimed at improving regional lenders' earnings that have deteriorated following the introduction of the negative-rate policy.

"We can say this is a significant policy change," said Kiuchi, now executive economist at the Nomura Research Institute.

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