TOKYO: Stress tests by Japanese financial regulators have found that many of the country's regional banks are unprepared for a possible spike in bond yields, sources familiar with the findings said on Wednesday.
The Financial Services Agency (FSA) is set to urge individual banks to prepare for a possible rise in Japanese government bond (JGB) yields after finding 90 percent of the 40 regional banks which were tested lacked specific plans to deal with a surge in rates, the sources said.
The sources declined to identify the 40 banks.
None of the regional banks were found to be at risk of a capital shortfall even in the case of a 1 percent rise in yields but the FSA still wants them to improve risk management, they said.
Benchmark 10-year JGB yields have fallen to record lows this year, trading around 0.35 percent on Wednesday.
The latest tests found that the potential impact of a 1 percentage-point rise in JGB yields would be greater than a 40 percent slump in stock prices or a scenario in which 1 percent of banks' outstanding loans turn bad, the sources said.
Japan has more than 100 regional banks, accounting for around 40 percent of the country's $4.6 trillion in outstanding loans. But overall loan demand has shrunk 10 percent over the last 20 years.
An FSA official declined to comment.
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