NEWS： The Bank of Japan warns financial institutions of high risk
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The Bank of Japan warned Thursday that its banking system is becoming increasingly fragile as financial institutions increase risk lending and investment in a long-term, ultra-low interest rate environment.
"The cost of credit is still very low, but it has recently started to rise, especially for regional financial institutions," the Bank of Japan said in its semi annual analysis of the Japanese banking system.
Regional banks have been actively taking risks through loans and investment, the report said, as long-term ultra-low interest rates and shrinking populations have prompted them to seek higher returns.
"Their capital adequacy ratio has continued to decline modestly as they have not been able to obtain sufficient returns relative to the risks involved," the report said.
"If this continues, the ability of banks to absorb losses in the face of stress events will decline, and the function of financial intermediation will be weakened, thus increasing downward pressure on the economy," the report said.
Major financial institutions have also expanded overseas lending activities, making the Japanese banking system more vulnerable to overseas economic conditions, the report said.
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