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Japan's top banks to accelerate cutting client equity holdings

[TOKYO] Japan's top banks are accelerating a planned cutback in their holdings of shares of corporate clients, a practice that has been criticised for making the lenders vulnerable to market swings and for impeding good governance in companies.

Mizuho Financial Group, Japan's second-largest lender by assets, said on Friday it will cut 40 per cent of its equity holdings and aims to dispose at least 70 per cent of them by the end of March 2019.

"Stock holdings are exposed to market risks. We will constantly reduce them by gaining understanding from issuer companies," Mizuho CEO Yasuhiro Sato told an earnings briefing. Mizuho said the book value of its domestic equity holdings stood at about 1.96 trillion yen (S$22.7 billion) as of March.

Mizuho posted a 13 per cent net profit increase in its financial second quarter ended in September, helped by gains from selling some of its equity holdings.

Japanese banks hold billions of dollars worth of corporate clients' stocks to cement business ties. The practice has been widely criticised for hindering rigorous corporate governance, as banks play the role of friendly shareholders to management.

The banks are also under regulatory pressure to reduce such equity holdings since they could hurt lenders' financial health in times of market turmoil.

Sumitomo Mitsui Financial Group also said it has set a goal of reducing its domestic equity holdings by half as a percentage of its core capital in five years.

The third-largest bank said the book value of its domestic equity holdings stood at about 1.8 trillion yen as of September, which is about 28 per cent of its common equity Tier 1 capital.

The lender's second-quarter net profit fell more than half from the year-earlier period to 120.3 billion yen after it booked impairment losses on its minority stake in Indonesian lender PT Bank Tabungan Pensiunan Nasional Tbk (BTPN).

Japan's largest lender, Mitsubishi UFJ Financial Group , also announced a similar goal of cutting the equity shareholdings, saying it aims to bring down the percentage of such holdings against Tier 1 capital to around 10 per cent in five years, from about 19 per cent now.

The 10 per cent goal is "the level, at which we are not likely to post losses even at times like the Lehman shock", MUFG CEO Nobuyuki Hirano said at an earnings briefings.

Its second-quarter net profit fell 5 per cent to 321.6 billion yen, hurt by bigger credit costs.