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* Plans to start unsecured retail loans in early 2019
* Likely to charge around 10 pct interest rate -Holdings' CEO
* Bank is effectively banned from regular loan business (Recasts with executive comments, context)
TOKYO, March 31 (Reuters) - Japan Post Bank Co Ltd, the country's biggest bank by assets, on Friday said it will seek regulatory permission to sell unsecured retail loans, as it hunts for higher returns in an environment of ultra-low interest rates.
The bank aims to start selling the loans in early 2019, with a lending cap of 500,000 yen ($4,470) per person, said Masatsugu Nagato, chief executive officer of the bank's state-backed parent, Japan Post Holdings Co Ltd.
"There is a need for unsecured loans," Nagato said at a news conference.
The bank, with assets of 210 trillion yen ($1.9 trillion), is subject to government restrictions to protect smaller private-sector lenders.
It is barred from most of the regular lending business, with loans accounting for just 1.8 percent of its investment portfolio. The bulk of its funds is invested in Japanese government bonds (JGBs) and other securities.
The bank has been overhauling its investment portfolio to improve returns since listing on the stock exchange in 2015. A central bank negative interest rate policy added impetus to the overhaul last year as yields from JGBs and other securities fall.
Nagato said Japan Post Bank is likely to set interest rates on unsecured retail loans at around 10 percent. By comparison, yields on 10-year JGBs are 0.07 percent.
Unsecured loans are taken out without the borrower pledging collateral, and so carry higher interest rates due to the higher risk of banks being unable to recover money in the event of defaults.
The government owns 80 percent of Japan Post Holdings, which in turn holds 74 percent of Japan Post Bank.
Earlier this week, the government hired six investment banks to advise on the sale of more shares in Japan Post Holdings.
$1 = 111.8100 yen Reporting by Taiga Uranaka; Editing by Chris Gallagher and Christopher Cushing