Newly appointed Financial Services Minister Heizo Takenaka said Tuesday he will encourage more mergers among banks as a way to accelerate the disposal of their bad loans.
Takenaka also said he will create a project team within the Financial Services Agency this week to devise specific measures to speed up bad-loan writeoffs; those measures could include the injection of public funds into banks.
The project team, which will include experts from the private sector, will also consider schemes to promote further consolidation of the banking industry, he said.
“I understand why people say Japan has too many banks,” Takenaka said, referring to both regional banks and larger city banks. “Increasing the pace of mergers is one method (to strengthen their finances and speed up the disposal of bad loans).”
Mergers, however, have to be considered as part of a comprehensive plan to revamp banks’ loan assessment, capital strength and corporate governance, he said.
“Mergers can give birth to short-term profits, but forceful management and corporate governance are necessary to make those gains permanent.”
The project team will be charged with coming up with an interim report by mid-month and a “total action plan” by about the end of the month, he said.
Takenaka faces a skeptical public, jaded by past ministers’ broken promises over the last decade.
His task is to convince the public that funds will be used effectively if the government uses taxpayer money to bail out the banks.
This is why he remains hesitant on ideas floated by Finance Minister Masajuro Shiokawa about using the state’s debt-collector, the Resolution and Collection Corp., to buy up bad loans and keep them on ice for up to 30 years.
“It’s an option,” he said. “But unless it is done right, it may harm banks’ governance” and further damage public trust in the financial system.
While Takenaka said he intends to basically keep to his predecessor’s commitment to reduce existing bad loans by 50 percent in two years and 80 percent in three years, he said that is only a medium-term goal.
His ultimate goal is to make sure banks regain their role as financial intermediaries and that money pumped into banks by the central bank makes its way into the real economy.