Japan plans tighter oversight of regional banks' profits

TOKYO, Apr 03 (Reuters): Japan's financial watchdog on Wednesday proposed rules to expand its oversight of regional banks, including broad stress tests, with more focus on lenders' future profitability.

The move comes in the wake of growing concern among policymakers over the plight of regional banks, which have seen profits hit by years of ultra-low interest rates and an exodus of borrowers moving to bigger cities as the population shrinks.

Under current regulations aimed at pre-empting regional bank failures, the Financial Services Agency (FSA) has focused on whether commercial banks meet minimum capital adequacy ratios and past data in determining whether they are deemed financially viable.

The new rules would include the FSA verifying banks' core net income and capital adequacy under certain stress conditions for up to five years into the future.