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The Financial Services Agency plans to appoint inspectors specializing in each of the nation’s 12 major banks to enhance supervision and expedite bad-loan disposals, sources close to the FSA said Wednesday.

The inspectors will be tasked with making each bank book credit costs by monitoring the business performance and share prices of their corporate borrowers, the sources said.

The FSA is seeking to revive confidence within global financial markets regarding efforts to dispose of the bad loans plaguing the nation’s banking sector, the sources said.

The inspection regime will be modeled on the U.S. system, under which official bank examiners are stationed at each bank throughout the year, they said.

The FSA plans to arrange for the Diet to revise the Banking Law to allow veteran inspectors to subject each major bank to constant monitoring, they said.

The inspectors will seek to ensure that banks classify corporate borrowers in terms of their creditworthiness, in line with fluctuations in their share prices and credit ratings, the sources said.

They will examine whether the banks classify borrowers and assess bad-loan disposal costs in line with the FSA’s findings in periodical inspections concerning the creditworthiness of the borrowers, they said.

The inspectors will also check whether the banks have classified outstanding loans and borrowers in line with the FSA’s inspection manual, which stipulates detailed norms for classifying borrowers in terms of business performance, according to the sources.

The sources said the 12 banks are expected to book 7.9 trillion yen in loan-loss charges for fiscal 2001, up from their previous estimate of 6.5 trillion yen.

The increase in the credit cost estimates has been necessitated by the special inspections conducted by the FSA since October. The inspections were carried out using stricter classification standards in respect of the creditworthiness of large corporate borrowers, the sources said.

The inspections covered 149 of the banks’ major corporate borrowers whose share prices have fallen notably or whose credit ratings have been lowered, they said.

The FSA will announce the results of the special inspections Friday.

Lending down 4.5%

Bank lending fell 4.5 percent in March from a year earlier, down for the 51st month in a row, the Bank of Japan said Wednesday.

The average daily lending balance for the month came to 438.07 trillion yen, the central bank said in a preliminary report.

In fiscal 2001, which ended March 31, the lending balance fell 4.2 percent from the previous year, marking the fifth straight year of decline, the BOJ said.

These figures apparently reflect weak corporate demand for new investment funds, as well as a reluctance to lend among banks still burdened with bad loans.

When adjusted for special factors, including loan securitization, exchange-rate fluctuations and the allocation of loan-loss reserves, the March lending balance fell 2.3 percent to 447.93 trillion yen, posting the 42nd straight month of decline.

The figures cover five categories of banks: banks with nationwide branch networks known as city banks; trust banks; long-term credit banks; regional banks; and second-tier regional banks.

On an unadjusted basis, the March balance at city banks, the largest lenders, fell 5.8 percent to 198.45 trillion yen, while that at regional banks, the second-largest, slipped 0.7 percent to 133.21 trillion yen.

The loan balance fell 4.2 percent to 44.10 trillion yen at second-tier regional banks, 5.5 percent to 37.61 trillion yen at trust banks and 11.9 percent to 24.69 trillion yen at long-term credit banks.

The daily balance of real deposits and certificates of deposit at city banks, regional banks and second-tier regional banks rose 2.5 percent to an average of 474.03 trillion yen in March, the BOJ said.

The outstanding balance of commercial paper at the end of the month rose 9 percent to 20.38 trillion yen.

The balance of outstanding loans at foreign banks operating in Japan grew 12.5 percent to 9.22 trillion yen.

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