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Second in a series

Staff writer

In the campaign for the coming Upper House election, the government and the ruling Liberal Democratic Party will promote a plan to create a state-run financial institution with a lending function to facilitate the disposal of nonperforming loans.

The buildup of such loans is considered to be at the root of the lingering economic slowdown, according to LDP Secretary General Koichi Kato. The plan will aim to give a lending function to the Resolution and Collection Bank, established in 1996 initially to take over collapsed credit cooperatives in Tokyo, he said.

“We are determined to work out details of a scheme to solve problems caused by bad loans, which are the remains of the bubble economy,” Kato, 59, said in an interview. “It is important to map out the scheme in a way that can be fully understood by the public. In this connection, we will urge the banking industry to disclose more relevant information,” he said. “We are currently doing our utmost to carry it out. Without dealing with the bad loan-related problems, the nation’s economy will not recover its health and will adversely affect the world economy,” the No. 2 man in the LDP said.

The Finance Ministry announced in January that the nation’s major and regional banks estimated they have accumulated 76.71 trillion yen in potentially sour loans. Of that amount, 65.29 trillion yen in loans and credits was classified as belonging to “second category” loans, which means they are problem-free as long as the banks use caution in managing them.

However, Kato said the nation’s banks should disclose more information about their possibly troubled loans, including how many of the second-category loans are likely to turn sour. Although Kato said the collapse of some private companies, including construction and real estate firms saddled with bad loans, might be unavoidable, he stressed that attention should focus on preventing economic uncertainty from occurring due to the bankruptcies.

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