Takenaka meets with bankers, gets Koizumi’s support

The government spent much of Wednesday trying to get its house in order after the unexpected postponement the previous day of the release of a key report on how it will accelerate banks’ disposal of nonperforming loans.

Financial Services Minister Heizo Takenaka, who heads the team tasked with mapping out the bad-loan report, held a meeting with leaders of the country’s 12 major banks in the afternoon to exchange opinions on planned measures, which include controversial methods to speed up the sour-loan disposal.

Meeting participants avoided disclosing specifics.

After the roughly one-hour discussion, Takenaka told reporters that the “most up-to-date” issues had been discussed, including a broad range of subjects such as the governance of bank management.

In the meeting, bank executives maintained that individual banks strictly assess their problem loans, according to Shigemitsu Miki, president of Mitsubishi Tokyo Financial Group Inc., the nations’s third-largest banking group.

“We exchanged general opinions,” another participant said after the gathering. “We discussed what we have been doing (to dispose of sour loans) and what we are going to do.”

In addition to Takenaka, the meeting was also attended by Deputy Vice Minister Tatsuya Ito and Shokichi Takagi, Financial Services Agency commissioner.

Prime Minister Junichiro Koizumi said he expects the bad-loan disposal steps to be finalized in line with the draft interim report by Takenaka’s task force.

However, sources close to the ruling Liberal Democratic Party, whose opposition to the draft report led to it being shelved for the time being, said the paper will likely not be completed by Friday as government officials had hoped.

Both the report, as well as a package of steps to combat deflation, will probably be compiled by the end of this month, the sources said.

Meanwhile, Chief Cabinet Secretary Yasuo Fukuda indicated the same day that the government will be flexible in discussing details of Takenaka’s plans on problem loans.

“I think the outline of (Takenaka’s) plan is all right,” the government’s top spokesman told a regular news conference. “But specifics of his proposals will depend on future discussions.”

Fukuda’s comment came in response to the ruling bloc’s vehement opposition to the plan, which centers on stricter assessment of bank assets and refers to the possibility of placing undercapitalized banks under state control and having current management take responsibility.

The ruling parties say they are concerned that implementing the plan would drive ailing companies that have borrowed from the banks into bankruptcy and displace large numbers of workers.

Fukuda said the government and the ruling parties will likely hold discussions over the guidelines by the end of the week.

“We will discuss not only financial system reform but also measures to create safety nets” to deal with the impact of a possible increase in bankruptcies and unemployment likely to emerge when the banks speed up bad loan disposal, he said.

Finance Minister Masajuro Shiokawa told reporters separately that he thinks Takenaka’s ideas must eventually be implemented.

“I think the LDP became a bit reluctant because it had no prior notice and the explanations (of the plan) came as a shock,” Shiokawa said.

According to government sources, the draft interim report urges major banks to strictly assess loan assets to speed up bad-loan disposal.

Takenaka also sought to include in the report a tougher calculation standard for bank tax refunds, under which they would be considered equity capital, they said.

If the proposals in the draft report are adopted, major banks could be nationalized and heavily indebted major firms could go under. before Japan’s loan crisis is resolved.