S&P warns of blow to Japan regional banks if negative rates deepen

A 0.1 percent point cut in Japan’s short-term policy target will reduce core operating profits of major commercial banks by 6 percent, S&P Global Ratings said on Tuesday. (AFP)
Updated 29 October 2019

S&P warns of blow to Japan regional banks if negative rates deepen

  • A 0.1 percent point cut in the BOJ’s short-term policy target will also reduce core operating profits of major commercial banks by 6 percent

TOKYO: Japanese regional banks will see core operating profits fall by 21 percent if the central bank deepens negative interest rates, S&P Global Ratings said on Tuesday, warning of the potential dangers of ramping up an already massive stimulus program.
A 0.1 percent point cut in the BOJ’s short-term policy target will also reduce core operating profits of major commercial banks by 6 percent, the rating agency said in a report.
“Much bigger headaches loom for Japan’s already struggling banks if the country’s central bank pushes interest rates down further. And regional banks will be worst hit,” it said.
The warning comes ahead of the BOJ’s closely-watched rate review ending on Thursday, when it is seen holding policy steady but stressing its readiness to top up stimulus if overseas risks threaten a fragile economic recovery.
Regional banks are particularly vulnerable to the hit from deeper negative rates as their profits rely more heavily on domestic lending than their bigger peers, S&P said.
Based on data for the fiscal year ended in March, 10 out of 64 regional banks lost money in their lending businesses, the report said.
A further deepening of negative rates would bring that number up to 56 regional banks, or 88 percent of the total, it said.
Under a policy dubbed yield curve control (YCC), the BOJ guides short-term rates at -0.1 percent and the 10-year government bond yield around 0 percent to help it achieve its 2 percent inflation goal. That target has so far proved elusive, which has fueled speculation the BOJ must either step up stimulus or lower its goal.
BOJ Governor Haruhiko Kuroda has signaled that deepening negative rates will be among key options if the BOJ were to ease. But critics have warned that doing so could do more harm than good by hurting commercial banks’ profits and discouraging them from boosting lending.
The central bank itself is mindful of the rising cost of prolonged easing. In a report issued last week, the BOJ said commercial banks are loading up on complex financial products and risky loans in their hunt for yields.
S&P based its estimates on the assumption that a 0.1 percent point cut in the BOJ’s short-term rate target will lead to the same margin of fall in banks’ lending rates.
The rating agency said the BOJ’s introduction of negative rates in 2016 has so far pushed down the average interest rate on Japanese banks’ outstanding loans by 0.22 percent point.


At Davos, innovative products point to a sustainable future

Updated 24 January 2020

At Davos, innovative products point to a sustainable future

  • A single tree that to bear 40 different types of apple

DAVOS: The World Economic Forum is not all about the fourth industrial revolution or the rise of AI.

You can also find all manner of strange and intriguing products on display from biodegradable plastic made from algae to wallpaper made from recycled corn husks.

One stand titled “How do you design a tree?” is part of a conservation effort where a single tree is designed to bear 40 different types of apple.

Another stand displays colored seaweed on a rack, showing how clothes can be dyed in a sustainable, non-chemically corrosive manner.

Propped along a large wall is Fernando Laposse’s wallpaper made of variations of purple corn husks that are reinforced with recycled cardboard and cork to create wallpaper and furniture. The husks come from corn that needs very little water and can be grown in the desert, which makes it all the more sustainable.

“This initiative helps the local economy as it brings in jobs and a resurgence of crafts and food traditions while also ensuring sustainability,” Laposse said.

Another display shows a machine that extracts pellets from a mixture of algae and starch and is used to create a thread that is the base of 3D printing. These sustainable, biodegradable plastics made from algae are being experimented with in different regions.

With the rise of deep fakes — a branch of synthetic media in which a person in an existing image or video is replaced with someone else’s likeness — another stand delivers a warning on the looming dangers of unregulated software.

The Davos forum prides itself on its sustainability, and key topics have included climate, mobility, energy and the circular economy. Everything is recyclable, and participants must download an application in order to keep up with the program and any changes — a move to cut down on paper waste.