The Financial Services Agency will require banks to take drastic restructuring plans, including changes in top management, if they fall into the red and skip dividends after receiving public funds, according to a draft of guidelines obtained by Kyodo News.

The FSA is preparing to issue the guideline later this month to spur financial improvement among banks because a number of them, including major ones, are expected to fall into the red or forgo dividends for fiscal 2000, which ended March 31, and in the first half of the current fiscal year.

Banks that have received public funds to replenish their depleted capital bases are presumably in the midst of improvement because they had to submit reform plans to the government to get the injections. They are also required to repay the funds with internal reserves and other surplus funds on hand.

Under the proposed guideline, the FSA would not order immediate improvements in management to banks who fall into the red as a result of taking significant loan-loss charges and if they chalk up net business profits as planned, according to the draft obtained Wednesday.

Those banks will be encouraged to promote bad-loan disposal and upgrade their management plans voluntarily to increase retained earnings to repay the funds, the draft says.

But if banks fall into the red for other reasons or fail to pay dividends on preferred shares they issued in exchange for the injections, the FSA would require them to amend their restructuring and management improvement plans, the draft says.

If those banks fail to present new restructuring plans acceptable to the FSA, the government would exercise its voting rights at a shareholders’ meeting to force operational reforms and changes in top management.

The FSA would also not permit repayment of the funds to be delayed, the draft says. A number of major banks, including Daiwa Bank and Asahi Bank, have already announced plans to close their books in the red for fiscal 2000 as a result of stepped-up loan disposal.

The banks are already working on new restructuring plans to abide by the expected FSA guideline.

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