Japan regulator urges banks to reduce cross-shareholdings

[TOKYO] Japan's financial regulator urged the country's biggest banks to reduce their cross-shareholdings, warning that their heavy exposure to the equity markets poses risks to their capital.

The cross-shareholdings of Japan's three largest banks are equivalent to nearly 50 per cent of their core capital, the Financial Services Agency said, far exceeding their peers in the United States and Europe where the figure is less than 10 per cent.

"The impact on their capital at times when the stock market falls cannot be ignored," the agency said in an annual report on its financial supervision, published on Friday. "They need to bolster their financial strength, including reducing the risk from stock price volatility," it said.

Most of the shares held by Japan's three biggest banks - Mitsubishi UFJ Financial Group Inc, Mizuho Financial Group Inc and Sumitomo Mitsui Financial Group Inc - are in client companies, which also hold shares in their banks to cement business ties.

The government of Prime Minister Shinzo Abe is pressuring Japanese companies to reduce cross-shareholdings, which have come under criticism for fostering cosy shareholder ties that can undermine accountability and transparency.

Under a corporate governance code introduced last month, banks and other Japanese companies are required to explain to investors the rationale for their cross-shareholdings.

REUTERS