The nation's regional banks, desperate to boost returns with interest rates around zero, are coming under scrutiny from regulators as they increase purchases of risky investment trusts.
The Financial Services Agency (FSA) has been talking to bankers to gauge whether the firms have the knowledge and structure to handle those products, which cover everything from stocks to real estate, according to its officials. Some of the lenders don't appear to, the regulators say. The FSA has told them to strengthen their risk management, for example by adding staff if needed, said the officials who asked not to be identified due to the agency's policy.
Regional banks have struggled in recent years as a shrinking population and narrowed lending margins hurt their loan business, while investment in government bonds loses its appeal with yields below zero. To boost returns, so-called first-tier regional lenders poured a record ¥1.94 trillion ($18 billion) into a category of securities that includes investment trusts and other funds in the year ended in March, according to Regional Banks Association of Japan data, bringing the total outstanding amount to ¥7.02 trillion.