The Financial Services Agency on Friday officially disclosed the results of its latest inspections of major banks, downgrading credit assessments of 71 of the banks’ 149 large corporate borrowers.
Given the results, the banks are set to book around 7.9 trillion yen in loan loss charges for the 2001 business year, which ended March 31, an increase of about 1.9 trillion yen.
It is expected that this will reduce the banks’ capital adequacy ratios by about 1 percent from projections made in September, down to an average of 10 percent, an FSA official said.
The figure still clears the 8 percent required for banks with international operations. The latest capital adequacy ratios will be released in May in the banks’ earnings reports.
To enhance bank supervision and speed up bad-loan disposals, the FSA will launch a new inspection system as early as summer in which inspectors will be appointed to each of the banks.
In announcing the inspection results, Financial Services Minister Hakuo Yanagisawa expressed confidence the special probe has confirmed the financial “soundness” of Japanese banks.
“I believe banks are not in a situation that requires public fund injections to strengthen their capital bases,” Yanagisawa told a news conference, brushing aside calls for fresh injections of taxpayer money to avoid a possible financial system meltdown.
The special probe was launched in October and continued through the end of March and applied stricter classification standards for the creditworthiness of major banks’ large-lot corporate borrowers.
It focused on the 12.9 trillion yen in credit that major banks had extended to 149 large corporate borrowers whose financial soundness were in question.
Among the borrowers who were investigated, 71 saw the assessment of their financial health downgraded. The value of loans downgraded came to 7.5 trillion yen, the FSA said.
Assessments range from “sound” to “virtually bankrupt.”
Of the 71 downgraded borrowers, 34 saw their ratings downgraded to “facing imminent danger of bankruptcy” or “virtually bankrupt.”
Loans involved in these downgrades are worth 3.7 trillion yen, the FSA said.
Problem loans center on the four industries struggling under the ongoing economic slump: construction, real estate, retail and nonbank financial institutions.
Of the 149 borrowers screened, 98 are in one of the four industries, and the value of loans extended to these firms is 10.5 trillion yen, the FSA said.
As for the financial inspection system to be launched in the summer, inspectors for each major bank will ensure that banks report credit costs by monitoring the business performance and share prices of corporate borrowers.
The regulatory agency plans to arrange for the Diet to revise the Banking Law to allow inspectors to subject major banks to constant monitoring.
The FSA is seeking to revive confidence within global financial markets regarding Japan’s efforts to end the bad loan problem plaguing its economic recovery.
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