Under pressure to get to the bottom of their bad loans, six major banks tripled their bad loan disposal projections for fiscal 2001 in revised business plans submitted to financial regulators Thursday.
The six banks together reported that credit costs will rise to 1.2 trillion yen for the year ending March 31, 2002, up from the 359.9 billion yen forecast in 1999, when the banks received an injection of public funds to help bad loan writeoffs.
The Financial Services Agency announced the same day that banks’ so-called risk-management loans as of the end of March grew from a year earlier, totaling 31.8 trillion yen.
Estimated loan-loss charges at the three banks making up the Mizuho Financial Group quadrupled to 800 billion yen, while the sum for Chuo Mitsui Trust & Banking Co. rose 3.7 times to 110 billion yen, according to the plans.
The revisions were made to reflect the high pace of bankruptcies and to keep step with the government’s pledge to have major banks write off the worst of their nonperforming loans within three years, said Mitsuru Machida, executive officer of Mizuho Holdings Inc.
“The environment surrounding bad-loan disposal deviates considerably from our expectations (back in 1999),” Machida said, referring to the large volume of newly arising bad loans that appear as quickly as banks are able to dispose of them.
Nor will the pace slacken until the end of fiscal 2002. The revised business plans say that credit costs for bad-loan disposal at the six lenders will total 743 billion yen for that year, twice the originally scheduled 337.9 billion yen.
In the face of a global economic downturn, international criticism has focused on Japan’s banks and their bad loans, blaming them for dragging down the world’s second largest economy.
The six banks — which also include Daiwa Bank, Asahi Bank, Aozora Bank and Shinsei Bank — said business profits will cover the cost of bad-loan disposal and that repayment of the bailout will occur as originally scheduled.
But with banks facing mounting securities losses amid a global stock downturn and a switch to new accounting rules, these plans may be overly optimistic.
Mizuho Holdings, which integrates Dai-Ichi Kangyo Bank, Fuji Bank and the Industrial Bank of Japan, said its net business profit will rise to 1.2 trillion yen in fiscal 2005, up 34.3 percent from last year’s performance. This will be achieved by selling securities, closing additional branches and stepping up layoffs, Machida said.
The banks will have no problem buying back 2 trillion yen in government-owned preferred stock it issued in exchange for an injection of capital, he said.
But as Masamoto Yashiro, chairman and CEO of Shinsei Bank, said, cost cuts by themselves don’t increase earnings. “You don’t raise earnings just by making cheap hires,” Yashiro said. “Banks should work on making sure employees’ earnings are in accordance with their cost.”
Many analysts call into question banks’ ability to outpace the number of new bad loans without more public help.
And more help is precisely what the FSA has repeatedly stated that it is unwilling to offer.
Also on Thursday, 10 regional banks, including Yokohama Bank, vowed to accelerate the disposal of their bad loans for fiscal 2001 in their rehabilitation programs announced the same day.
Risk assets increase
Banks’ so-called risk management loans increased by 1.4 trillion yen as of the end of March from a year earlier to 31.8 trillion yen, the Financial Services Agency said Thursday.
The figure excludes risk assets held by Aozora Bank, the formerly state-controlled Nippon Credit Bank. With Aozora included, the sum came to 32.5 trillion yen in March, the agency said.
The increase of 1.4 trillion yen mainly stemmed from banks’ stricter assessment of borrowers as well as worsening business conditions on the part of borrowers, FSA officials said.
The risk management loans held by 18 major banks stood at 18.6 trillion yen in March, down 1.2 trillion yen from a year earlier, according to the FSA officials.
Among major banks, city banks held 12.89 trillion yen in risk management loans and long-term credit banks had 3.16 trillion yen, while trust banks held 3.21 trillion yen.
Regional banks’ risk management loans increased to 13.2 trillion yen in March, up 2.6 trillion yen from 10.6 trillion yen reported a year earlier, they said.
Banks’ combined losses from their bad-loan writeoffs came to 6.1 trillion yen as of the end of March, down from 6.94 trillion yen registered in March 2000, the agency said.
The amount of bad-loan writeoffs peaked in March 1998 at 13.25 trillion yen and has since been declining, according to the FSA.
The FSA also announced another set of figures calculated under the criteria set by the financial reconstruction law, which covers a wider spectrum of risk assets.
All banks’ risk assets under this criteria came to 33.6 trillion yen at the end of March, including those held by Aozora Bank, the officials said.
On a comparable basis that excludes Aozora Bank, the sum stood at 33 trillion yen, up 1.2 trillion yen from a year before, the officials said.
Both statistics were based on reports from the nation’s 137 major and regional banks.
Nonperforming loans at all deposit-taking institutions — banks, excluding Aozora Bank, plus credit cooperatives — increased by 1.4 trillion yen on year to 42.8 trillion yen, the FSA said.
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