![Risk.net](https://www.risk.net/sites/default/files/styles/print_logo/public/2018-09/print-logo.png?itok=1TpHrpuP)
Japan's banks under pressure as Nikkei hits fresh 20-year lows
Japan’s Nikkei 225 stock index fell to fresh 20-year lows today, sparking further concerns that the capital adequacy ratios of the country’s banks may come under acute pressure in the approach to the March fiscal year-end.
This has come at a time when banks are under pressure from Japan’s regulator, the Financial Services Agency, to accelerate the disposal of non-performing loans (reported at ¥40.1 trillion as of September 2002), which has already depleted Tier One capital levels. With the equity market continuing to fall, there has been growing concern that capital ratios of the major banks could potentially fall below the 8% minimum recommended by the Bank for International Settlements (BIS).
“If the equity market falls further, there could be a situation under which [the major banks] find it very difficult to meet the BIS regulatory capital ratio,” said Mutsuo Suzuki, senior vice-president of the ratings group at Moody’s Investment Service in Tokyo.
In January, Mizuho Holdings forecast that its losses would reach ¥2 trillion at the end of March, following a sharp increase in loan-loss provisions over the year. As a result, it reported that its capital adequacy ratio would fall to around 9% from 10.42% in September 2002. Analysts reckon a further fall in the Nikkei, increasing the bank’s unrealised losses even further, could put Mizuho’s capital ratio under critical pressure.
The major banks have recently been scrambling to bolster capital reserves ahead of the fiscal year-end. Mizuho, for example, is in the process of raising ¥1 trillion through the issuance of preference shares, while Sumitomo Mitsui Banking Corporation (SMBC) announced in January that US investment bank Goldman Sachs will inject ¥150.3 billion of capital into the Japanese bank in exchange for convertible preference shares which, if converted, would give it a 7% stake in SMBC.
The Japanese government has stated it will consider converting the preference shares it holds as a result of the 1998 and 1999 bank capital injections into common stock – effectively a nationalisation – if there is a ‘serious deterioration’ in the banks’ financial performance, thought by some to mean a drop in capital ratios below 8%.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
Vendors lack silver bullet for FRTB’s fund-linked issue
EU and UK legislators tried to ease capital charge by leaning on vendors, but problems persist
Does Basel’s internal loss multiplier add up?
As US agencies mull capital reforms, one regulator questions past losses as an indicator of future op risk
US Treasury official calls for SLR relief during market stress
Under Secretary Liang also urges scrutiny of “artificial incentives” for Treasury futures in 40-Act rules
US banks seek to open vendors’ black box on green data
Inaugural Fed climate scenario analysis flags lack of transparency around third-party models
Why FRTB models are on the edge of extinction
With only four banks known to be applying to use internal models for market risk, the fate of advanced modelling looks precarious
Reframing the Fed’s discount window
Funding window incentives and collateralised credit lines could transform bank liquidity in a crisis, argues Bill Nelson
Attention shifts to US, UK after European Union postpones FRTB
Risk Live: Global timeline still unclear, with banks hoping lawmakers will use delay to soften rules
Go your own way: departures pose new challenges for CFTC
Loss of Democratic majority would impede chairman’s ambitions for regulatory agenda