Japan's financial services regulator plans to introduce changes to its early intervention regime for regional banks in the country, The Nikkei reported March 15.
Currently, the Financial Services Agency, or FSA, takes action when banks do not meet capital adequacy requirements. The FSA plans to review its guidelines to also take future profitability into account.
The regulator will conduct stress tests on banks, possibly by the summer, the publication said. Regional lenders that fail will be asked to introduce plans to raise their profitability, including measures such as branch closures, staff reassignments and limitations on dividend payments, the report added.
Further, the FSA will issue official improvement orders to banks that are slow to implement changes, and may order them to make changes to top management personnel if poor profitability is determined to be a result of poor governance within the leadership ranks, The Nikkei said.
The FSA plans to put together changes to existing guidelines by June, Reuters said in a same-day report, citing a government official with direct knowledge of the matter.
Profitability at Japanese regional banks have been challenged in recent years by declining population numbers in regions outside metropolitan areas as well as the ultralow interest rate environment.
54 out of 106 regional banks in the country reported losses in their lending, financial instrument sales and other core businesses for the fiscal year ended March 2018, The Nikkei said.