The tumble in Tokyo share prices to 19-year lows Wednesday is likely to deal a severe blow to the finances of Japanese banks and corporations.

Corporations can expect little help from the nation’s major banks if the current descent in share prices continues, according to analysts. If their credit spigots go dry, corporations would be forced to cut back on expenditures, thereby triggering a downward spiral in the economy.

“The economy is in for a long haul of stagnation,” said Yasunari Ueno, chief market economist at Mizuho Securities Co.

Wednesday’s share price falls added up to 5 trillion yen to the combined unrealized losses to the equity portfolios of the largest 13 banks, said Reiko Toritani, an analyst at ratings agency Fitch Ratings Inc.

The loss of value reduces banks’ capital, which has already been weakened by writeoffs and provisioning against more than 50 trillion yen in bad loans.

“The frailty of bank capital means that, depending on share prices, banks are simply incapable of taking risks,” Toritani said.

Although their capital-to-asset ratio was comfortably above 10 percent as of May, banks face increasing pressure to reduce their assets prior to end-of-month book closings. The resulting efforts by banks to tighten credit and reduce their assets may seriously impact the already faltering economy, she said.

Prospects of a strong rebound by the end of the month are weak, economists said.

“I don’t see much material that would convince me to buy,” said Junichi Kumagai, senior economist at NLI Research Institute. “Overseas demand that the economy has been relying on was just not as strong as we thought.”

And a further fall could be debilitating. A loss of another 1,000 points on the benchmark Nikkei average of 225 stocks would result in 10 trillion yen in unrealized losses for banks, Toritani said.

Should the Nikkei average fall to 8,000, major banks’ capital-to-asset ratios may fall below 8 percent — the level required by regulators to operate in international markets, said Richard Jerram, an analyst at ING Financial Markets.

“I don’t think anyone expects banks to make dividend payments on their preferred shares for the interim period,” he said.

Three of the largest four banking groups hold 4.65 trillion yen in preferred shares — issued in return for injections from the government — in their core capital. As a result, they run the risk of being nationalized unless they pay dividends on these shares at the end of the fiscal year.

Before that happens, the government can provide another capital injection or it can request the Resolution and Collection Corp. to buy up the bad loans in a bid to shore up the banking system, Jerram said.

But government officials dashed market hopes of some form of extra budget to shore up share prices on Wednesday. In February, when share prices fell to similar levels, the government increased restrictions on short-selling that boosted share prices.

“Instead of trying to boost share prices each time they fall, the government should consider implementing steps that will bring about sustainable recovery,” Mizuho Securities’ Ueno said. “Now is the time to deliver on promises for tax breaks and funding to support ventures and new businesses.”

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