(MENAFN - Gulf Times) S & P Global Ratings warned of mounting risks to Japan's banking industry stemming from the impact of low interest rates and competition on earnings.
The ratings company revised its view of risks in the industry to 'negative from 'stable in a statement on Friday. 'Weakening profitability in the banking sector due to weak earnings caused by lingering low interest rates and high competition could further pose a risk to the stability of Japan's banking system, S & P said.
Japanese banks have been struggling to prop up profits even as the nation's economic recovery fuels loan growth. With the Bank of Japan leaving its unprecedented monetary easing programme intact on Thursday, S & P said pressure on lending margins may intensify.
Banks' credit losses should remain stable in the next two to three years, S & P said. Still, 'the current modest net-interest margins will become a more significant constraint on profitability if a slowdown in the economy pushes up banks' credit costs, limiting their capacity to absorb losses.
The revision means S & P could lower its view of bank industry risk in Japan within the next two years. Japan's industry is currently ranked in the second-least risky category, along with countries including Germany, Switzerland and Hong Kong. The risk scores are used to determine a bank's 'anchor rating, which then feeds into its credit rating.