Takenaka dives into final talks on bad-loan plan

Government, bankers, politicians battle toward compromise as markets grope for direction

Financial Services Minister Heizo Takenaka intensified efforts Monday to forge a compromise with the ruling parties and top private banks over his controversial plan to accelerate the disposal of bad loans.

“We have not decided on details yet . . . but the government and ruling parties will work to compile better measures by tabling each other’s ideas,” Chief Cabinet Secretary Yasuo Fukuda told reporters, suggesting the government may yield to demands for a partial amendment of the plan.

Proposed compromises are expected to include postponing the introduction of stricter accounting and other rules by a year to fiscal 2004 and introducing them in phases over five years from fiscal 2003 or fiscal 2004, sources said.

But the ruling parties themselves remain apart.

Some lawmakers totally oppose stricter rules and others accept them as proposed for fiscal 2003 on condition that the government not sternly discipline top bank managers in a bid to prevent a credit crunch, according to the sources.

Takenaka entered into final negotiations Monday with the coalition — the Liberal Democratic Party, New Komeito and the New Conservative Party — to compile bad-loan measures as part of a comprehensive government package of economic and antideflation steps to be announced Wednesday.

He also met again in the morning with the heads of seven top private banks following their talks Friday, conveying his intention to decide on the measures when Prime Minister Junichiro Koizumi returns Tuesday from Mexico, where he attended an Asia-Pacific Economic Cooperation forum summit.

But Takenaka and the top bankers remain far apart, the sources said.

In the previous meeting, the top bankers lodged a strong complaint with Takenaka.

At stake are stricter rules that may lead to a depletion in the capital bases of major banks. If they fall below the internationally accepted 8 percent threshold, the government would most likely pump taxpayers’ money into them and possibly nationalize them.

The proposed stricter accounting rules would limit the amount of potential future tax credits a bank can count as core capital to within 10 percent of its overall capital; some analysts say banks are counting these potential earnings for between 30 percent to 50 percent of their capital.

This means that the new accounting rules could wipe out as much as 40 percent of some banks “core capital.”

Takenaka also wants banks to provide more loan-loss reserves for “loans to borrowers under close observation,” by using the so-called discounted cash flow calculation formula in assessing the present value of the bad loans.

He also intends to separate out loan assets at nationalized banks into healthy and bad loans and put them into separate accounts.