Japanese banks capital-to-assets ratio
SIX of Japan's 11 major commercial banks are close to falling below the minimum capital-to-assets ratio of eight per cent required by the Bank for International Settlements (BIS), says David Atkinson, a financial analyst at Goldman Sachs (Japan).
The BIS, which sets standards for banking, requires banks that lend internationally to have risk-weighted capital equal to eight per cent of their total assets. Banks need to meet this ratio when their financial years end - which in Japan is March 31.
Banks with capital-to-assets ratios below eight per cent face limitations on overseas lending activities. Last year, some commercial banks sold new debt to raise capital to pull themselves above the eight per cent level.
Because stocks are included in the BIS calculation of capital, recent stock declines in Japan have raised concern that banks are in danger of not meeting the requirement.
The Nikkei 225 average fell 3.8 per cent to 16,078 yesterday, not far enough to put any commercial bank in jeopardy, Atkinson said.
And unless the stock market falls further and stays down until next March, the banks will stay out of danger.
But if the Nikkei 225 fell below 15,500 at the end of the financial year, Bank of Tokyo was in danger of seeing its capital come in at less than eight per cent of its assets, Mr Atkinson said.
Daiwa Bank is in trouble when the Nikkei falls below 14,000; Sakura Bank below 12,700; Mitsubishi Bank below 12,000; Asahi Bank below 11,800; and Dai-Ichi Kangyo Bank below 11,700, according to Mr Atkinson.
The other commercial banks had enough capital to meet the requirement until the Nikkei fell below 8,500, he said.