The Bank of Japan will start offering ¥1 trillion in subordinated loans to banks next month in an effort to bolster their capital and encourage lending.
Banks that meet "international capital standards" will be eligible for loans of up to ¥350 billion, the central bank said Friday in a statement providing details of a program announced last month. The loans will be offered until March 31, 2010.
The Nikkei 225 stock average's 42 percent drop since the beginning of 2008 eroded the value of shares held by banks, making it harder for them to maintain capital ratios and limiting their ability to lend. Subordinated loans can be accounted for as capital.
Interest rates on the 10-year and perpetual loans will be determined at auctions using a premium over the six-month Tokyo interbank offered rate, or Tibor. The central bank plans to hold auctions every quarter, and the first will take place by the end of May. The auction schedule will be published early next month.
The BOJ plans to offer ¥500 billion in loans at the first two auctions and will hold further auctions if bids from banks don't meet that amount, it said in a briefing on the program. The loans won't require collateral.
Recipients will be able to repay the loans after three years and the interest rate will increase by 1.5 percentage point after five years.
The bank said it plans to publish the names of the borrowers "around the end of May 2010," although it won't disclose the loan amounts.