BOJ decides to review scheme to aid regional banks

FILE PHOTO: A man stands in front of the headquarters of Bank of Japan in Tokyo, Japan, May 22, 2020. REUTERS/Kim Kyung-Hoon//File Photo
FILE PHOTO: A man stands in front of the headquarters of Bank of Japan in Tokyo, Japan, May 22, 2020. REUTERS/Kim Kyung-Hoon//File Photo

TOKYO (Reuters) -The Bank of Japan will amend a scheme aimed at revitalising regional banks and review its rules in a move likely to avoid payouts to banks increasing excessively.

"In order to ensure the appropriate conduct of the Special Deposit Facility to Enhance the Resilience of the Regional Financial System, the Bank of Japan decided to amend the limit to the eligible amount for special remuneration," the central bank said in a statement on Tuesday.

The amendment will be effective from the November 2021 reserve maintenance period, it said.

Many regional banks are grappling with diminishing returns from traditional lending as years of ultra-low rates from Japan's loose monetary policy hurt profits and a dwindling population has seen companies move to bigger cities.

Under the BOJ's scheme to revitalise regional financial institutions, regional banks -- if certain conditions are met such as merging and streamlining costs -- will receive 0.1% interest on their current accounts at the central bank.

It has prompted regional banks to aggressively tap funds from the call money market to shift into their accounts at the BOJ.

Their solid fund demand has pushed up the overnight call rate - Japan's key money market rate - close to 0%, despite the central bank's pledge to keep short-term rates at around -0.1%.

(Reporting by Daniel Leussink, Leika Kihara and Tetsushi Kajimoto; Editing by Kim Coghill and Jacqueline Wong)

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