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Moody's: Japan Post Bank's higher deposit limit is credit negative for itself

Japan Post Bank Co. Ltd.'s increase in deposit limit is credit positive for Japanese rated regional banks, but credit negative for the lender itself, Moody's said.

Earlier in March, the Japanese government said that it will double Japan Post Bank's deposit limit to ¥26 million from ¥13 million, effective April 1. Deposits exceeding ¥26 million will be automatically transferred to non-interest-bearing accounts.

The rating agency said March 12 that the higher deposit limit could slow Japanese regional banks' deposit growth, which is credit positive. These banks already have sufficient deposits and liquidity, and slower deposit growth would help limit further increases in their asset risks.

Meanwhile, the higher deposit limit is credit negative for Japan Post Bank itself because any increase in deposits will lower its nominal leverage ratio and hurt its profitability or weaken its capital if it directs the excess cash to risk assets.

The bank's profitability will also be affected if it opts to keep the excess cash at the Bank of Japan, because the Japanese lender will have to pay interest to the central bank under the current negative interest rate environment.

As of March 12, US$1 was equivalent to ¥111.36.