The Bank of Japan's offer to buy $11 billion (Dh40.37bn) worth of shares may be aimed at reducing banks' exposure to the stock market, but a fear of realising losses may discourage lenders from using the scheme.
The central bank said earlier yesterday that it would buy up to one trillion yen worth of listed shares held by Japanese banks through April 2010, reviving a scheme used earlier this decade to prevent a financial sector crisis.
But some analysts questioned whether banks would actively sell to the BoJ this time, wary of booking losses on shares that could eventually recover after the crisis, or of damaging relationships with client firms. Japanese banks at parent company level held 25.6 trillion yen (Dh1.04trn) worth of shares at the end of March, the result of a traditional practice known as cross-shareholding in which they retain stakes in their borrowers to cement ties.
"Selling shares to the BoJ would lead to losses and hit their earnings. It would also cause troubles with their business partners and negatively impact their banking operations after the sale," said Deutsche Securities analyst Shinichi Tamura.
"There are probably many banks that feel it is better to be patient and hold the shares, even with latent losses."
Last week Mizuho Financial Group cut its annual net profit forecast by more than half to 100 billion yen, leaving Japan's second-largest bank vulnerable to a loss if it were to book further losses on its shareholdings.
Mitsubishi UFJ Financial Group said last month it would book a loss of 288bn yen on stocks held by two of its banking units, and a newspaper reported yesterday it may fall into the red for the full year.
Japanese banks have to write down stockholdings if the share has fallen 50 per cent or more below book value, but can avoid losses for falls less steep than that if it is determined that the stock has the potential to recover.
Japan's benchmark Topix index has fallen 35 per cent since the end of last March, meaning that on paper the country's banks have lost nearly nine trillion yen on their stockholdings. Selling to the BoJ would realise those losses.
Others said there wasn't the same incentive to sell to the BoJ that existed in 2002, when banks were required to lower their equity shareholdings to 100 per cent of their Tier-1 capital.
"Under the BoJ's 2002 buyback scheme, there were limits introduced on banks' shareholdings, which gave banks an incentive to sell their shares," said Nana Otsuki, bank analyst at UBS Securities in Tokyo.
"It seems doubtful about how much of an incentive there is this time around."