WASHINGTON – The International Monetary Fund voiced concern Thursday for Japanese banks fighting to stay afloat in increasingly stormy waters.
“Continued high loan losses as well as losses on banks’ substantial equity portfolios will reduce bank capital,” the IMF said of the Japanese banking sector in its quarterly Global Financial Stability Report.
The report says that although Japanese banks have attempted to boost core profitability by such means as charging higher interest rates to a few borrowers, the weak financial state of most borrowers — especially small and medium-size enterprises — provides limited room for growth.
“Operating profits are therefore unlikely to increase significantly, particularly since bond and derivatives trading gains — which boosted profits of the major banks in the latter half of fiscal 2001 — appear largely unsustainable,” it says.
The IMF also said financial and corporate sector problems in Japan are destabilizing factors for the global economy, an apparent reference to the need for Japan to accelerate the disposal of bad loans at banks and promote corporate restructuring.
Major global equity market indexes declined significantly and by early August were near or below levels not seen since fall 1998.
The IMF attributed the global stock slump mainly to an erosion of investor confidence following a series of corporate accounting scandals in the United States and growing uncertainty about the strength and durability of the world economic recovery.
But it said the global economy will continue to grow, although “at a slower pace than previously expected,” unless individual investors rapidly withdraw their funds from stock markets.
The IMF said the dollar continued to depreciate against the other major currencies, reflecting reductions in foreign investment in U.S. equity markets as well as in foreign direct investment.
The decline in foreign investment in U.S. markets could serve as a source of risk for global financial markets, it added, calling on the United States to maintain fiscal discipline to avoid a withdrawal of funds by investors.
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