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

If supervisors examine the books of commercial banks simply by examining cash flow and balance sheet data, they could prevent banks from supporting borrowers who have been affected by the coronavirus pandemic but have growth potential, said Ryozo Himino of the Financial Services Agency (FSA) commissioner.

“The viability of borrowers should not be assessed by the current balance sheet and cash flow,” he said at a webinar hosted by the Institute of International Finance.

“Regulators should respect the judgment of bankers, even though this could lead to less uniform provisioning practices. “

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The massive support measures must be withdrawn at some point to avoid hampering the necessary efforts of companies to restructure and prepare for a post-pandemic business environment, he added.

But policymakers also need to avoid a premature exit that could trigger a credit crunch, where viable companies could go bankrupt due to liquidity shortages, he carefully said.

“It’s a delicate balance,” he said, adding that it was still premature to discuss an exit from the crisis measures in Japan.

Reporting by Leika Kihara; Editing by Pravin Char


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