Ja­panese Banks set to cut de­posit rates to­day

The Pak Banker - - COMPANIES/BOSS -

Ja­panese lenders are rush­ing to cut de­posit rates be­fore the start of the Bank of Ja­pan's neg­a­tive in­ter­est rates on Tues­day, fol­low­ing sharp falls in bench­mark bond yields.

Su­mit­omo Mit­sui Bank­ing Corp said it cut the in­ter­est rate on or­di­nary de­posits to 0.001 per­cent a year, from 0.02 per­cent, the bank's first re­duc­tion on or­di­nary de­posits since Septem­ber 2010.

The rate, ef­fec­tive from Tues­day, means a de­pos­i­tor will be paid an an­nual in­ter­est of 100 yen ($0.88) on 10 mil­lion yen ($88,000).

The bank, a core unit of Ja­pan's third­largest len­der Su­mit­omo Mit­sui Fi­nan­cial Group, and its big­gest ri­vals Bank of Tokyo-Mit­subishi UFJ (BTMU) and Mizuho Bank have al­ready cut rates on time de­posits, though those re­main in pos­i­tive ter­ri­tory. But bank ex­ec­u­tives said fur­ther cuts in loan in­ter­est rates are un­likely to give a boost to loan de­mand. "Our cor­po­rate clients are say­ing the BOJ's neg­a­tive in­ter­est rates won't lead to an in­crease in cap­i­tal spend­ing," said a se­nior ex­ec­u­tive at one of the mega­banks.

"With global mar­kets this volatile, they are tak­ing wait-and-see stance. One client told me his com­pany is even putting a pro­ject on hold to re­build its own of­fice build­ing," said the per­son, who de­clined to be iden­ti­fied given the sen­si­tiv­ity of the mat­ter.

"On a macro level, busi­nesses and house­holds have sur­plus funds. Fur­ther falls in in­ter­est rates are un­likely to lead to a surge in loan de­mand," said Ry­oji Yoshizawa, di­rec­tor at Stan­dard & Poor's in Tokyo. Sim­ply put, banks make money from the gap be­tween what they pay for de­posits and what they re­ceive from loans.

The Bank of Ja­pan un­ex­pect­edly cut a bench­mark in­ter­est rate below zero late last month -- ef­fec­tively charg­ing fi­nan­cial in­sti­tu­tions which park money with it -- as it strug­gles to the stim­u­late the econ- omy. But even be­fore the in­tro­duc­tion of neg­a­tive in­ter­est rates, banks have lit­tle more room to cut de­posit rates, while loan in­ter­est rates are likely to fall fur­ther amid tepid de­mand.

Bank of­fi­cials said it is dif­fi­cult to charge fees or neg­a­tive in­ter­est rates on clients' de­posits given a pos­si­ble pub­lic back­lash. A mas­sive with­drawal of cash from the bank­ing sys­tem is also a pos­si­bil­ity. Short of such mea­sures, ma­jor banks are ask­ing some large big cor­po­rate clients to re­frain from mak­ing large de­posits at their banks, peo­ple with di­rect knowl­edge of the mat­ter said.

A se­nior money man­ager at a ma­jor life in­surer said his com­pany has a large vault in the base­ment for keep­ing im­por­tant doc­u­ments. "Half jok­ingly, my col­leagues and I checked how much cash it could hold, if nec­es­sary," said the per­son, who was not au­tho­rised to dis­cuss the mat­ter pub­licly. "As it turned out, it could hold only sev­eral bil­lion yen (sev­eral tens of mil­lions of dol­lars)."

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