FXStreet (Mumbai) - BOJ on 29th January announced a cut in benchmark interest rate below zero. The central banks policy will come into effect on 16the February and from there on 0.1 percent negative rate will be charged for the 10 trillion yen to 30 trillion yen of funds which are parked in current accounts at the BOJ. BOJ’s decision stunned investors. It is not just the investors who were left surprised, lenders who will be charged for the 30 trillion yen ($250 billion) of deposits they have parked with the central bank have been left wondering what they will now do with the cash. Net interest margins which are among the lowest in the world will further shrink. Banks will therefore have to come up with other areas where they can park their money to make up the loss suffered due to the charges levied on them for leaving their deposit with the central bank. Banks can now look at aggressively expanding credit to companies and households. However, the problem here is there is not much loan demand in the economy which has grown at an annual 1 percent rate in the third quarter. Bloomberg reported that official data showed substantial slow down in loan growth in the latter half of 2015. Bloomberg quoted UBS Group AG analysts who feels “It is hard to see this negative interest-rate policy leading to any substantial loan growth”. Banks could also look at buying JGBs. But that too does not seem like a workable option given that the BOJ started buying JGBs under the asset purchase programme and in turn investing them in other assets to raise inflation. Banks have themselves reduced JGB holdings by about 38 percent to 103 trillion yen since April 2013 when Kuroda began easing. Also, banks hesitate to hold longer-maturity debt given the interest-rate risk. 10-year yields which are now less than 0.1 percent are not really lucrative. according to Toyoki Sameshima, an analyst at BNP Paribas SA in Tokyo said via Bloomberg that banks may choose to invest in foreign bonds to earn positive yields. It may also prove beneficial for the banks to invest in domestic real estate investment trusts, corporate bonds and commercial paper. Ryoji Yoshizawa, a director at Standard & Poor’s in Tokyo opined that banks should consider the possibility of investing in overseas assets. He has however warned of the risks involved saying “Foreign bond investment still comes down to foreign-currency funding”. Japan’s biggest banks including Mitsubishi UFJ Financial Group Inc. have been expanding overseas by expanding credit and taking stakes in lenders in Asia and elsewhere.Lenders could possibly take a cue from Mitsubishi UFJ Financial Group Inc. that has expanded credit in overseas markets and has also bought stakes in lenders in Asia and elsewhere. Banks possibly can choose to pass on the charges levied on them to their own depositors. However, it is unlikely that a bank would want to do any such thing and jeopardize their reputation. Then again there is a risk posed by global slowdown which cannot be discounted. Banks can also not opt for salary cuts as that would go against Abe’s goal of increasing wage growth with an objective to boost spending and in turn raise inflation. Experts seen a possibility of consolidation among regional banks in the wake of the negative interest rate. The regional banks that might not have required money to make up for losses incurred from shrinking rates might opt for consolidation. Thus there is a rising possibility that bigger players might take over the smaller ones. For more information, read our latest forex news.