Bank of Japan cautions on low loan-loss reserves

Lenders vulnerable to reverse in benign economic conditions

Japanese banks’ loan-loss provisions continue to ebb below the low levels held before the financial crisis, the Bank of Japan (BoJ) reports, fanning concerns that the sector could be vulnerable to a sudden credit shock.

The median ratio of loan-loss provisions to total loans among Japanese regional banks stood at 0.037% in 2017, far lower than the 0.091% reported in 2004, and over six times lower than the 2008 peak of 0.23%.

Even among banks with some of the highest loan provisions to total