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Japan regulator to step up surveillance of stressed banks

Tokyo

JAPAN'S financial regulator said it would beef up surveillance of local banks that show signs of stress as years of ultra-low rates and a shrinking population erode their profitability.

The Financial Services Agency (FSA) will take preventive steps such as on-site inspection and administrative punishment when banks post continuous deficit or their capital adequacy ratio drops below 4 per cent, the regulator's annual report shows.

"The environment around regional banks has become increasingly severe," the report said on Wednesday. "Regional banks need to establish a sustainable business model and secure financial health."

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The FSA also said it would consider lowering the deposit insurance rate for financially robust banks in a move to drive consolidation among regional lenders. All domestic financial institutions are currently required to reserve a deposit insurance fee of 0.033 per cent to hedge against bankruptcy. With the change, the FSA would require different rates depending on a bank's financial health, measured by factors such as the size of its core capital. REUTERS