Bank of Japan plans scheme to reward banks for lending to small businesses

By Leika Kihara

TOKYO (Reuters) - The Bank of Japan will create a new scheme as soon as possible to reward financial institutions for lending to small businesses suffering in the wake of the coronavirus pandemic, Governor Haruhiko Kuroda said on Wednesday.

As part of its $1.1 trillion stimulus package, the government has laid out various programmes offering cheap loans to companies hit by a coronavirus-related slump in sales.

Kuroda said the BoJ was looking at ways to encourage financial institutions to tap the government programmes.

Specifically, the central bank is preparing a scheme where it would finance loans that commercial banks extend to small businesses via the government programmes, Kuroda said.

The BoJ would also pay 0.1% interest to commercial banks that boost such lending, he said.

"Once we have a clearer idea on details of the government programmes, we hope to set up this scheme as soon as possible," Kuroda told parliament.

The central bank expanded monetary stimulus on Monday to combat the widening fallout from the pandemic, which has sent the economy to the brink of deep recession by forcing households to stay home and businesses to shut down.

Most measures taken by the BoJ so far target large companies that can borrow easily from banks or tap credit markets. The challenge for policymakers is to reach out to smaller businesses that could go under without immediate funding support.

At Monday's rate review Kuroda instructed his staff to consider measures to support small businesses. His latest remarks suggest the scheme could be put in place before the BoJ's next rate review over June 15-16.

(Reporting by Leika Kihara; Editing by David Goodman)