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Troublesome loans at the nation’s top 18 banks totaled 21.78 trillion yen as of the end of March, according to fiscal 1997 earning reports released by Monday.

The figure was calculated under a new set of standards that includes loans considered in danger of going sour. The total includes loans under bankruptcy and those in arrears for more than three months, as well as restructured loans at nine city banks, three long-term credit banks and six trust banks.

The old disclosure rules mandated that loans past due for six months be included. The new guidelines also widen the definition of loans in the restructured category. Under the former disclosure rules, the total amount of problem loans for the same period came to roughly 15.63 trillion yen.

Regarding earnings for the fiscal year, 13 of the banks, including all city banks, logged pretax losses after using their net business profits to help write off bad loans.

Nippon Credit Bank posted the largest pretax profit, at 16.4 billion yen, after launching a comprehensive restructuring program in the fiscal year that included closure of overseas operations. It now operates solely in Japan, where the capital adequacy rules are less stringent.

NCB plans to resume dividend payments in the latter half of fiscal 1998, bank officials said. In contrast, the Bank of Tokyo-Mitsubishi, the industry giant, had 917.5 billion yen of losses.

Beginning in the current fiscal year, banks are subject to a system of prompt corrective actions under which regulators will step in and demand improvement in operations based on objective criteria such as capital-to-asset ratios.

Prior to the new scheme, banks were instructed to make their own reassessments on necessary provisions to cover faulty loans. The new rules have ignited increased moves to dispose of sour loans.

Disposal of bad loans will help domestic banks become more competitive against foreign financial firms before the full effect of the Big Bang financial deregulation is felt. However, some banks may find the load of future write-offs too heavy. Observers say steps to clear bad loans, such as securitization of assets, will also need to be enhanced if banks are to regain health.

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