The head of the Japanese Bankers Association on Tuesday denied international and domestic assertions that banks’ bad loans are responsible for the nation’s economic woes.

“Bad loans are not a cancer on the economy,” Yoshifumi Nishikawa said at a regular news conference. “They are not slowing the economy down.”

In the wake of an international economic slowdown, attention both domestically and abroad has focused on Japanese banks’ bad loans. Politicians are pushing major banks to cut their problem loans from their balance sheets by either calling, selling or forgiving loans to problem borrowers.

Because banks must continue to set aside loan-loss reserves for problem loans, this eats into their ability to loan money to promising new businesses.

But Nishikawa argued that banks have high enough capital adequacy ratios — the ratio of a bank’s capital to its assets — that they can take risks, despite their problem loans.

“The balance of outstanding loans continues to fall, but this reflects the current economic situation,” said Nishikawa, who is also president and CEO of Sumitomo Mitsui Banking Corp., which was created this month when Sumitomo Bank and Sakura Bank merged.

“Bad-loan disposal should proceed, (and) left to the responsibility of each individual bank,” Nishikawa said.

But at least one influential person sees things a bit differently.

Bank of Japan Gov. Masaru Hayami said Tuesday that the central bank intends to keep a close watch on the emergence of new bad loans at banks.

“We will continue to request that banks continue to write off their bad loans from their balance sheets,” Hayami said during a regular news conference. “We feel strongly that appropriate action is needed; we intend to watch (the progress of) newly emerging bad loans and the situation of (borrowers in danger of defaulting).”

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