TOKYO–The Bank of Japan is reporting it had offered payments to nearly 90% of the country's regional lenders—including credit unions--under a program designed to revitalize the financial services sector by encouraging mergers and cost cuts.
While called “credit unions” in Japan, they differ from the model and structure known in the U.S. and elsewhere.
Beginning in September, the BOJ began paying 0.1% interest on deposits held at the central bank by regional lenders that reduce costs, boost profits or consolidate. Of the roughly 100 regional banks in Japan, 86 qualified to receive the payments, a did 142 smaller credit unions, the BOJ said in a statement to Reuters.
In just two weeks since payments began, the BOJ spent a combined 4.9 billion yen ($43 million) to compensate the lenders, Reuters stated.
“The BOJ introduced the scheme to prod regional banks, already reeling from prolonged ultra-low interest rates and a dwindling population, into consolidating or streamlining operations to weather worsening business conditions,” according to the report. “Regional banks that consolidate or meet annual cost-cut thresholds are eligible for the scheme, which is a three-year program running through March 2023.
‘Beyond the Realm’
Reuters noted there have been critics of the program who said it goes “beyond the realm of central banking by offering payouts to a specific industry with the aim of driving reform in the sector.”
When the BOJ unveiled the plan, a senior central bank official estimated it would spend up to 50 billion yen per year on payments.
“But the number of regional banks that met requirements exceeded the BOJ's expectations, inflating the expected size of payments to the lenders,” Reuters added.