Japanese negative interest rates reduce profits of largest banks

Financial Services Agency of Japan calculated that negative interest rates imposed by the Bank of Japan will reduce the profits of the three largest banks in the country with at least 300 billion JPY during the financial year to March 2017. The Financial Supervisory Authority expressed concerns to policy of BoJ, because believes that tight profits would lower the ability of banks to increase lending. The agency estimates that profits of Mitsubishi UFJ Financial Group Inc would fall by 155 billion JPY, profits of Sumitomo Mitsui Financial Group Inc will drop at least by 76 billion JPY, while Mizuho Financial Group Inc will lose 61 billion JPY.

If Bank of Japan lowered more the negative interest rates, Financial Services Agency forecast that banks will record even bigger declines in profits as their net interest income will be affected. BoJ reduced the interest rates to negative level in February in an attempt to stimulate the economy.

Although negative interest rates can reduce the cost of financing for companies, they can easily melt bank profits, since they absorb the cost of negative interest rates.

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