Takenaka urges banks to assess loans more strictly

Financial Services Minister Heizo Takenaka said Saturday that banks must adopt stricter methods in assessing loans and ruled out the possibility of compiling an extra fiscal 2002 budget to fight deflation.

Speaking on TV talk shows recorded to be broadcast Sunday, Takenaka also suggested the government may use the current legal framework instead of drawing up new laws to inject public funds into banks.

Takenaka said the issues will be taken up this week by a Financial Services Agency task force established Thursday to figure out ways to accelerate the disposal of bad loans at private banks.

Referring to the current efforts of banks to assess loans themselves, Takenaka said, “It is being well conducted, but the important point is what yardstick they are using.”

His comments suggest that the task force will consider stricter assessment standards, such as checking projected cash flows at large corporate borrowers so that banks will increase loan-loss provisions and categorize borrowers more appropriately.

The current method is largely based on risks of loans becoming irrecoverable.

In rejecting calls by many ruling coalition lawmakers for a supplementary budget, Takenaka said, “We do not need additional macroeconomic demand.”

As for financial resources to cover the proposed tax cuts, he reiterated that the government should sell off its assets.

On public funds, Takenaka indicated that the government may use the current legal framework, including the Deposit Insurance Law, to inject cash into banks again.

“There are two ways — either we make a new framework or be realistic because we don’t have much time,” he said. “But it will be one or the other when we actually (inject funds), and I will decide.”