(Bloomberg) -- Japanese banks will start earning billions of yen in interest on their deposits with the Bank of Japan after it scrapped negative rates. 

Major banks, including Mitsubishi UFJ Financial Group Inc. and other top lenders, have 106.7 trillion yen ($712 billion) in reserves that are currently paying no interest, according to BOJ data. They have another 79.4 trillion yen on deposit that is earning 0.1%. 

In announcing the end of its negative interest rate policy on Tuesday, the BOJ said it will pay 0.1% interest to current account balances, excluding required reserves. The new interest rate will apply from March 21, the central bank said. Japan has a national holiday on Wednesday.

If that is applied to current reserves, major banks will earn additional interest of about 100 billion yen annually, according to Bloomberg calculations. 

Top banks have announced plans to raise rates for retail depositors. Following the BOJ’s decision, MUFG said its domestic banking unit will raise interest rates on ordinary deposits to 0.02% on Thursday, up from 0.001% currently. 

Japan’s largest bank said it won’t change its short-term prime rate, a benchmark used for floating-rate mortgages.

Sumitomo Mitsui Financial Group Inc.’s banking unit also said it will raise deposit rates from April 1.

In a statement, Mizuho Financial Group Inc. CEO Masahiro Kihara said Japan’s third-largest lender will also raise interest rates it pays to savers to spur deposits as a source of funding.

Kihara did not say what rate Mizuho will pay savers. Like rivals, the bank currently pays 0.001% on ordinary deposits. Before the BOJ introduced negative interest rates in 2016, banks generally paid 0.02% interest. 

While banks have the opportunity to earn interest, they are likely to deploy the cash to where there are better returns. They will likely shift their current account balances at the BOJ to government bonds as yields rise, according to Hideyasu Ban, a senior analyst at Bloomberg Intelligence. 

“Banks with higher weights in domestic interest-earnings assets and/or cash sitting at the BOJ will have higher earnings sensitivity to domestic rate rises,” Ban wrote in a report.

The Topix Banks Index traded about 0.2% lower after the BOJ decision.

 

 

 

 

 

(Updates with other banks)

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