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Problem loans at the nation’s 64 regional banks rose 17.7 percent to 9.8 trillion yen during fiscal 2000 as borrowers fell delinquent and banks made more stringent assessments of loans, the Association of Regional Banks said Wednesday.

Loans categorized as “troubled but not yet in default” soared 60.4 percent to 2.8 trillion yen. Banks increased writeoffs 14.4 percent to 1.3 trillion yen, causing 15 of the 64 regional banks to report net losses.

During the previous year, five banks reported net losses.

“Banks went into the red because of increased writeoffs to boost their financial standing” in preparation for tougher times ahead, said Sadaaki Hirasawa, chairman of the association and president of Yokohama Bank.

Pressure has been mounting on regional and major banks to clean up their books.

The government has asked the nation’s biggest banks to remove the worst of the problem loans from their balance sheets within three years.

Meanwhile, business profits at the nation’s 64 regional banks inched up 0.9 percent from the previous year to 1.2 trillion yen, as they cut personnel costs and raised loan-loss reserves to cope with troubled borrowers.

The association is working in conjunction with the Japanese Bankers Association and the Japan Federation of Economic Organizations to draft new guidelines for debt forgiveness.

Loan collection law

The Diet enacted a law on Wednesday to expand the scope of private loan-collection firms’ activities, paving the way for the Justice Ministry’s scheduled enforcement of the amendment this fall.

The bill, a revision of a previous law, was approved by the House of Councilors at a plenary session, completing the legislative process following the House of Representatives’ approval on June 5.

The bill cleared the Upper House on a majority vote by lawmakers of the ruling bloc — the Liberal Democratic Party, New Komeito and New Conservative Party — and the Democratic Party of Japan.

The revised legislation allows private operators to collect loans from bankrupt companies, independent nonbank financial institutions and special-purpose firms.

The amendment includes emergency government economic measures unveiled in April and is expected to speed up the disposal of bad loans held by financial institutions.

By the end of 2000, loan collectors had handled loans totaling 19 trillion yen, of which they had collected more than 810 billion yen. Forty-eight firms had registered as loan collectors by the end of April under the current law, which came into effect in 1999.

The law now allows firms to collect loans on behalf of financial institutions. Previously, only lawyers were allowed to collect loans on behalf of financial institutions.

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