Finance Minister Hikaru Matsunaga disagreed Wednesday with Bank of Japan Gov. Masaru Hayami, saying commercial banks should not disclose some of their problem loans to avoid hurting borrower firms.

Matsunaga was referring to “second category” loans, which includes those considered recoverable depending on borrowers’ efforts.

On Tuesday, Hayami issued an unusual statement urging each bank to further disclose the amount of its problem loans based on internal assessment. Expanded disclosure will help expedite bad-loan disposal, he said. Bad loans are considered to be the primary drag on the stagnant economy.

In response, Matsunaga said the disclosure of second-category loans may risk aggravating fundraising conditions for smaller companies, which are fighting an uphill battle in the sluggish economy.

Government and industry officials divide loans into three other categories — “first category” for performing loans, “third category” for loans banks think have strong chances of turning sour, and “fourth category,” for nonperforming loans.

At a news conference, Matsunaga said not all second-category loans are irrecoverable because each bank categorizes loans differently. If such loans were to be disclosed, even firms with the capability to repay them may be labeled problem firms, he said.

Last month, major banks disclosed problem loans using a newly expanded definition more in line with U.S. standards for such loans. But it is widely believed that the actual amount is even larger.

Asked about various ideas circulating within the ruling Liberal Democratic Party to help facilitate bad-loan disposal, Matsunaga expressed firm opposition to further use of public funds.

The government should, in principle, cope with the problem within the means of the existing 30 trillion yen public funds package that has been designed to stabilize the nation’s financial system, he said.

“New public money is not in my mind,” he said, adding, “I don’t think it will win public understanding.”

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