'Respect bankers' judgment': Japan's regulator urges flexibility in supervising lenders

TOKYO (Reuters) - Japanese authorities should respect commercial bankers’ judgment on the viability of borrowers, rather than review their credit quality mechanically with a uniform set of standards, the country’s top financial regulator said on Monday.

If supervisors examine commercial banks’ books just by looking at cash flow and balance sheet data, they could prevent the banks from supporting borrowers that have been hit by the coronavirus pandemic but have growth potential, said Ryozo Himino, the Financial Services Agency’s (FSA) commissioner.

“The viability of borrowers should be assessed not by current balance sheet and cash flows,” he told an online seminar hosted by the Institute of International Finance.

“Regulators should respect bankers’ judgment, even if it could result in less uniform practices in provisioning.”

Himino also said policymakers should proceed “very carefully” when phasing out emergency support put in place to cushion the economic blow from the pandemic.

The massive support measures must be withdrawn at some point to prevent them hindering necessary efforts by companies to restructure themselves and prepare for a post-pandemic business environment, he added.

But policymakers must also avoid a premature exit that could trigger a credit crunch, where viable firms could go under due to cash shortages, carefully said.

“This is a delicate balance,” he said, adding that it was still premature to discuss exiting the crisis measures in Japan.

Reporting by Leika Kihara; Editing by Pravin Char