A key LDP policymaker balked Wednesday at a proposal to allow the state-run Resolution and Collection Corp. buy collateral-backed bad loans at effective book value.
“Nobody would step forward to buy them (at book value) at a time when their prices have dived to the current market prices,” said Taro Aso, chairman of the Liberal Democratic Party’s Policy Research Council.
If the RCC was obliged to buy the loans at effective book value, “it would be tantamount to the government funneling large amounts of taxpayers’ funds into banks,” Aso said.
“Such moves should be avoided,” he added.
His remarks come a day after Masashi Teranishi, chairman of the Japanese Bankers Association, requested that the government buy real estate used as collateral at effective book value.
Effective book values would be much higher than the prices that the RCC has paid to purchase bad loans from banks to help them wipe the loans from their balance sheets.
As a result, letting banks sell bad loans to the RCC at effective book value would allow the banks to slash losses that they would otherwise incur from the sale of such loss-making collateral.
To calculate the effective book value of a loan, a bank takes the original book value of the loan and subtracts from it the total of the loan-loss provision it put up after assessing the degrees of recoverability of the outstanding loan.
Teranishi told reporters the RCC should be able to purchase loans based on “the prices computed by subtracting loan-loss provisions from the book values of the loans” if the RCC applies flexibility to its price-setting process.
BOJ plan temporary
The Bank of Japan’s plan to purchase banks’ shareholdings is only a temporary emergency measure that will run for about a year, BOJ Gov. Masaru Hayami said Wednesday.
“We will be very careful when buying shares to maintain the BOJ’s financial status,” Hayami told the House of Councilors Audit Committee.
“So, stock purchases will not be made in a large amount.”
Commenting on the international media’s critical tone toward the BOJ’s stock-purchase measure, Hayami said foreign news organizations initially did not understand the full extent of the purchase plan.
He added that they have since changed their tone.
BOJ officials said last week the BOJ will primarily pay market value for blue-chip shares worth several trillions of yen from 11 major and four regional banks.
The scheme will start later this year and will last for one year, the officials said, adding the purchased shares will be held by the BOJ for about a decade.
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