Japan bank body head - fog remains over global regulation
By Taiga Uranaka and Taro Fuse
TOKYO (Reuters) - A global regulatory review on how to measure default risks on loans and other assets could have a negative impact on bank operations, potentially curbing lending, the new head of Japan's banking industry body said.
Proposed changes in how to allocate risk weightings and other risk calculations "could put considerable constraints on financial institutions," Yasuhiro Sato, who became chairman of Japanese Bankers Association on Wednesday, said in an interview.
"I don't want to use the word credit crunch, but banks won't be able to fully function as financial intermediaries," he said.
Regulators have been introducing a set of tougher capital rules, known as Basel III, in the wake of the 2007-2009 financial crisis, requiring banks to hold more capital to withstand future economic stress.
Sato, president of Mizuho Financial Group Inc <8411.T>, Japan's second-largest lender by assets, said Japan's major banks have built up enough capital to meet Basel III requirements.
But he added uncertainty remains over some of critical details of the global regulatory review.
"The fog has not yet cleared. There could be a lion hiding beyond the fog," he said.
Especially, Sato expressed concern about the ongoing review of the methodology used by big banks to apportion risk weightings to different assets they hold.
Japanese bank executives have said the proposed changes in risk weightings could put an undue burden on banks by requiring them to hold far more capital against loans and other assets.
For instance, home loans would no longer receive a 35 percent risk weighting. Instead, they would be weighted based upon the size of the loan compared with the value of the property and the borrower's level of debt, with risk weightings varying between 25 and 100 percent.
"Taking risk is growingly seen as a bad thing. But for financial institutions, it is also a bad thing if they don't take necessary risks," he said.
"We need to bring the discussion in the right direction."
At the same time, Japan's major banks, including Sato's Mizuho, face growing investor pressure for bigger shareholder returns as they enjoy solid earnings. Sato said the banks need to respond to these demands.
"Even taking (regulatory) uncertainty into account, Japan's mega banks still have excess capital. So, management is leaning more towards whether to raise dividend payment, to do share buybacks or to spend on M&A," he said.
(Editing by Kim Coghill)
