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TOKYO (Jiji Press) — The Bank of Japan will curb the payments of additional interest on the balance of current account deposits held by regional lenders at the central bank by setting new rules for an aid program aimed at enhancing the resilience of the regional financial system.
The BOJ announced on Tuesday the introduction of a new upper limit on such additional interest payment to eligible regional banks that use the aid program.
In November 2020, the BOJ decided to introduce the aid program on a temporary basis, effective through the end of fiscal 2022. The program offers an additional interest rate of 0.1% for the current account deposits held by regional banks and others at the BOJ on condition that they work on improving their finances through mergers and cost reductions.
Regional banks’ current account deposits at the central bank expanded sharply in line with the BOJ’s large-scale provision of liquidity as part of efforts to cope with the new coronavirus crisis.
The total amount of payments to cover the additional interest rate was projected to possibly exceed ¥100 billion a year, against the BOJ’s earlier estimate of up to some ¥70 billion.
The BOJ thus set more stringent rules for the payments in order to reduce the speed of expansion in the outstanding current account deposits subject to the additional interest payments, to as slow as the average pace of increase before the pandemic.
A transitional measure will be adopted through to the end of March 2022. The revision will be implemented next fiscal year, starting with payments for April 2022.
