Japan May Inject Funds into Regional Banks

Japan's government is looking at a plan to inject public funds into 40 or more regional banks, whose capital bases are being hurt by rising bad loans amid the financial crisis, the Mainichi newspaper reported on Wednesday.

CNBC.com

Tokyo is considering the cash injection, which would be the first in about two years, as a way to get the nation's smaller banks to relax their lending attitude by propping up their capital, the paper said.

Government officials were not immediately available for comment.

Japanese banks have faced more demand for loans from corporate clients as the worsening economy and global credit squeeze makes issuing commercial paper too costly for companies.

But as banks lend out more money, they need to boost their capital to meet regulatory standards and protect depositors.

Seeking to address such worries and ease the credit crunch, the government aims to boost the capital adequacy ratio of the regional banks to around 8 percent from as low as 4 percent, the Mainichi said.

The government plans to inject the funds at the end of the business year in March, it added.

The Financial Services Agency estimates that the plan is feasible within an existing public fund framework of about 2 trillion yen ($21.4 billion) which would easily allow an injection of 10 billion yen into each bank, the Mainichi said.

Banks in Asia have largely avoided the massive credit losses that drove some of their U.S. peers out of business, but a growing number are being forced to sell shares and bonds to raise funds as the global economy weakens, leading to more bad loans.

Some economists think the downturn will last well into next year, putting more pressure on businesses, the property market and other assets and forcing banks to set aside more money for an expected surge in loan defaults.

Copyright 2009 Reuters. Click for restrictions.