Kimura, task force to go up against FSA bureaucrats in bad-loan battle

The Financial Services Agency said Thursday it has picked Takeshi Kimura, a hardliner financial consultant, as a member of a task force likely to talk tough on banks and deadbeat borrowers in a bid to clean up banks’ bad loans.

But analysts remained skeptical of real progress being made in bank reform, citing strong resistance from FSA bureaucrats, who will ultimately be left to decide on the implementation of proposals made by the task force.

Kimura, president of Tokyo-based consulting firm KPMG Financial Inc., last year clashed head-on with bank regulators over banks’ assessment of their borrowers.

The former Bank of Japan official has reportedly denounced 30 large borrowers as “zombies” holding banks hostage, saying a stringent assessment of those companies would require banks to set aside massive loan-loss reserves that banks cannot shoulder on their own. An injection of public funds would then be necessary, he says.

Also included among the five private-sector members is Nobuyuki Nakahara, an aggressive proponent of monetary easing on the BOJ’s policy board until his term ended in March.

Nakahara, who has applied pressure on the BOJ policy board to commit to a numerical inflation target, is likely to call for further monetary easing to offset deflationary pressures and potential credit-tightening as banks speed up bad-loan disposal, analysts said.

Both Kimura and Nakahara are likely to push for drastic measures, including an injection of public funds, which may be tempered by the views of Yutaka Kosai, chairman of the Japan Center for Economic Research, who will head the task force.

Kosai, a specialist in macroeconomics, finance and the tax system, has been pressing for a speedy disposal of bad loans and does not rule out the use of public funds or the nationalization of ailing banks.

But analysts say FSA bureaucrats are likely to strenuously resist their boss, Financial Services Minister Heizo Takenaka, and Kimura, with whom they have locked horns in the past year.

Commissioner Shokichi Takagi, who has repeatedly insisted that banks are sound and their assessments adequate, and three other FSA civil servants are on the 11-member task force.

“It’s all just reform-related noise,” said a brokerage dealer who declined to be named. “The Koizumi administration has been all flash and no show. The market is likely to be disappointed later.”

The task force, which held its first meeting the same day, aims to thrash out an action plan by the end of October.