The Financial Services Agency will start a new bank rating system in July that will allow regular bank inspections to be used more flexibly, agency officials said Friday.
The system is designed to help banks manage their own risks and improve the quality of their services. FSA officials said the time is right for introducing the new system because the financial industry has turned a corner after years of choking under heaps of bad loans.
Under the new system, the FSA will rank banks from A to D in nine areas, including customer protection, capital management, and the management of credit, market, liquidity and operational risks.
The FSA will adjust the frequency and extent of its inspections depending on the ratings. If a bank gets an extremely low mark in certain area, the FSA will focus its inspections on that area, officials said.
Earnings reports released earlier this week show that all seven major Japanese banks have achieved the government's target of halving their nonperforming loans from fiscal 2002 levels by March 31. The sour loan problem had been dragging on their profitability for a decade and cast a shadow over the health of the Japanese financial system.
The rating system will be put through a roughly one-year trial period. If it works smoothly, the agency will officially adopt the system in July 2006.