The government finalized a package of emergency economic measures Friday that sets a two-year limit on major banks’ disposal of their riskiest bad loans, limits their shareholdings and calls for a stock-buying body to buy company shares they hold.
The package was formally adopted at a meeting Friday of policymakers from the government and the ruling coalition — the Liberal Democratic Party, New Komeito and the New Conservative Party.
The package calls for establishment of the government-backed Bank Equity Purchasing Corp. to absorb Japanese banks’ stockholdings in other companies, limited under the plan to an amount below their capital.
The package avoided the issue of when to create the body, however, merely pledging to “work out details quickly, including necessary legal preparations.”
Bickering between the government and the ruling bloc over timing forced finalization of the package to be postponed for two days, and differences still remain between Shizuka Kamei, the LDP’s top policy maker, and Financial Services Minister Hakuo Yanagisawa over when to launch the body.
Kamei and others in the coalition want it established during the current Diet session, while government officials, including Yanagisawa, see its creation during the current session as impossible.
The package is intended to spur market confidence in Japan’s financial and industrial sectors and the stock market, which is needed to achieve a self-sustaining economic recovery.
Yanagisawa reiterated Friday that he believes details of the proposed stock-purchasing body will be mapped out around September.
“I am thinking that details will be mapped out to have an effect on companies’ half-year results through September,” he told a news conference.
Under the package, the nation’s 15 major banks will have two years from April 1 to dispose of their existing loans to failed firms and those likely to go under. Writeoffs of newly emerging problem loans must be completed within three years.
As of Sept. 30, Japan’s major banks held 13 trillion yen worth of loans to borrowers considered at risk of collapse or already under legal liquidation. Taro Aso, state minister for economic and fiscal policy, reckoned, “Imposing specific deadlines (for banks’ final disposal of bad loans) could never have been possible without our political will.”
The disposal of loans is designed to remove them from banks’ balance sheets either by debt waivers or through cutting off loans to failing companies that are unlikely to recover. To speed up the final disposal of these loans, the package calls for reviving debt-ridden companies by utilizing existing legal frameworks, including bankruptcy laws and corporate spinoffs.
The package also urges banks to waive firms’ excessive debt through various measures, including debt equity swaps, which enable corporate liabilities to be transferred in the form of securities. The government will also consider steps to lighten the tax burden on banks that waive debts.
Measures including job training for the unemployed are incorporated to create a safety net.
for those affected by corporate bankruptcies resulting from banks’ bad-loan disposal.
While the package limits banks’ shareholdings to an amount below the value of their capital, it fails to specify what percentage of their capital may be held as shares.
Japanese banks’ currently hold shares worth 150 percent of their capital, compared with around 60 percent for their German counterparts, Aso said. U.S. banks hold no shares.
The package says the government will guarantee the stock-purchasing body’s operations, but does not specify whether it will directly provide money.
The stock-purchasing body will be established with contributions by banks and other entities.
The government said it will consider using funds from Deposit Insurance Corp., a quasigovernmental body that protects bank deposits. Using DIC money would make it unnecessary for the government to directly fund the stock-purchasing body.
Government guarantees for funds to purchase stocks will also be considered, it says.
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