Japanese banks faceold problems under a new policy, Hong Kong insurers have become the hottestacquisition targets and Indian banks need to stop lending to reduce theircapital costs.
Japanese lenders continue to deal with the same old pain —eroding profit margins amid falling interest rates — despite the Bank ofJapan's recent decision to modify its policy framework to target 10-yearinterest rates, according to The WallStreet Journal. The central bank highlighted the impact of its latestpolicy on banks, saying declining lending rates have affected banks' ability tolend. However, the central bank reiterated its plan to keep real interest rateslow for long. BOJ Governor Haruhiko Kuroda said the central bank's main policytool would be to make further cuts to short-term rates and to the target levelof the long-term rate. While a steepening yield curve could increase banks'capital gains on bonds, the Journalnoted that they may need a lot more help than the central bank is willing togive.
Hong Kong insurers have become the hottest acquisitiontargets for Chinese and international insurers as the city becomes a hub forsavings outflow from China, the SouthChina Morning Post reported. Hong Kong insurers' brisk sales of lifepolicies and other investment savings products make them attractive for Chineseand international insurers looking to break into the city's insurance market.Asia Financial Holdings President Bernard Chan noted that he has never seensuch a frenzied pace of dealmaking in the city. Chan said he has personallyfielded more than 10 inquiries from foreign parties about the sale of insurancecompanies in his group. There were eight acquisitions of Hong Kong insurers byoverseas and Chinese companies in the first eight months this year, compared tosix in 2015 and three in 2014, according to data from Thomson Reuters.
Bloomberg News' Andy Mukherjee has one far-fetched idea forIndian state-run banks to revive profitability and reduce capital costs: stoplending. As Indian banks grapple with an ever-widening need for capital andmounting bad loans, Mukherjee proposed that state banks stop lending to reducetheir capital shortfall. Since new loans require additional capital, slowingannual credit growth from Moody's base case of 13% to 8% could slash banks'capital shortfall by half. Another way for banks to revive profitability andcut the need for external capital is for credit costs to go down. One piece of goodnews for banks is that the local steel industry, which is a major source of badloans, has been bolstered by the government's anti-dumping campaign. Still,credit costs accounted for more than 100% of the pre-provision income for eightof the 11 state-run banks that Moody's follows.
Chinese authorities are investigating a local branch ofNorth Korean lender Kwangson Banking Corp. for its alleged involvement inillicit trade activities that may support North Korea's nuclear weaponsprogram, Korea JoongAng Daily reported.The Dandong branch of Kwangson Bank was supposed to be closed down as part of aU.N. Security Council Resolution but the branch reportedly only moved officesand continued to secretly operate without a signboard. The Korean KwangsonBanking Corp. is an affiliate of North Korea's state-run Foreign Trade Bank.The bank was designated by the U.S. Treasury in 2009 for providing funds toentities supplying "dual-use" materials to North Korea, which canhave civilian and nuclear-weapons uses.
WestpacBanking Corp. is trying to regain consumers' trust by removingproduct-related incentives for its 2,000 tellers, The Australian reported. Westpac CEO Brian Hartzer said the bankwill cut all product-related incentives for its tellers in the bank's branchnetwork and replace them with incentives based on customer feedback. Under thenew bonus structure, tellers will no longer get rewards for the referrals theymake to sales staff. They will get incentives based on customer feedback aboutthe quality of service they provided, Hartzer said. The move is to ensure thatcustomers do not have cause to question the quality of the service they are receiving,the CEO said.