Nov. 10 (Bloomberg) -- Japan’s government is willing to tolerate domestic banks “briefly” falling below regulatory capital requirements to ensure the supply of credit, Financial Services Minister Shizuka Kamei said.

The government won’t punish local banks that report using domestic accounting standards if their capital adequacy ratios slip below 4 percent for a limited period of time, Kamei told reporters in Tokyo today. The minister said his focus is on making sure banks continue lending.

Japan’s largest banks, including Mitsubishi UFJ Financial Group Inc., use international standards and are required to keep their capital adequacy ratios, a key measure of financial strength, above 8 percent.

Data from the Bank of Japan today showed lending growth slowed for a 10th straight month in October, rising 1.5 percent from the same month a year earlier. The increase, excluding loans by credit associations, compared with a revised 1.6 percent in September.

Lending by Japan’s 10 so-called city banks, including Mitsubishi UFJ, rose 0.7 percent in October from a revised 0.5 percent in September, according to the Bank of Japan. Regional banks expanded lending 2.5 percent, compared with 2.8 percent in the previous month.

The Topix Banks Index tracking 84 lenders gained 1.6 percent as of the 3 p.m. trading close in Tokyo, making it the fourth best performer among 33 groups in the benchmark. The gauge has declined 15 percent this year.

To contact the reporter on this story: Finbarr Flynn in Tokyo at fflynn3@bloomberg.net

Last Updated: November 10, 2009 02:17 EST