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Sunday, November 10, 2002

Japanese Banks Set to Slash Lending

According to the Asahi Shimbun the toughening in Tokyo's bad-loan stance is forcing Japanese banks to react. The NBL disposal program being developed under Heizo Takenaka, minister for financial affairs and economic and fiscal policy, is supposed to make banks strictly appraise loans and set aside additional loss reserves to counter bad loans expected to surface as a result. Faced with tighter regulation, banks want to jettison loans, which count as risk assets, to prop up their capital levels. Much of the press has been skeptical about the intent of this reform, this early indication suggests that such skepticism may be misplaced, after all Japanese economic and monetary policy is caught between a rock and a very hard place. In which case watch out for the backdraft (See my blog: WILL HISTORY TREAT THE NAME TAKENAKA THE WAY IT ONCE TREATED YAMOMOTO here)

Threatened by the specter of state takeover under Tokyo's new bad-loan policy, the nation's four top financial groups plan to cut loans and other risk assets by 30 trillion yen in the current fiscal year, according to bank sources. Mizuho Financial Group, UFJ Group, Sumitomo Mitsui Banking Corp. and Mitsubishi Tokyo Financial Group will all significantly reduce their asset portfolios.To avoid hanging small, deeply imperiled corporate borrowers out to dry, and to dodge heat for crunching credit, the banks plan to scale back lending to foreign borrowers and securitize loans to major borrowers.

If higher loan-loss reserves drain too much capital, their capital-asset ratios may fall below the international floor of 8 percent, which is expected to trigger a government takeover. Assets of the banking groups carrying credit risks, including loans, totaled 273 trillion yen as of March, down 28 trillion yen from the previous fiscal year. By reducing such assets by 30 trillion yen, the banks will reduce their total risk liabilities by a greater margin in the current fiscal year.The offloading of assets is expected to bolster the banks' capital-asset ratios by about 1 percentage point.The biggest cut will be at Mizuho Financial, the world's largest banking group, which plans to shed 15 trillion yen from its asset portfolio. Sources said this is two to three times the initially planned amount.UFJ ranks second with planned cuts of 7 trillion to 8 trillion yen, followed by Sumitomo Mitsui Banking, which plans to add several trillion yen in cuts to its plan to reduce assets by 5 trillion yen.Mitsubishi Tokyo Financial, meanwhile, will slash assets by 2 trillion to 3 trillion yen.
Source: Asahi Shimbun

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