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An entity being created to salvage companies unable to repay their bank loans but deemed potentially viable will complete its purchases of nonperforming loans within two years to achieve its purpose as soon as possible, the government said Wednesday.

The measure is aimed at speeding up banks’ efforts to dispose of bad loans, a problem Prime Minister Junichiro Koizumi hopes to resolve by the end of fiscal 2004, an official said.

The official disclosed the plan Wednesday at a preparatory government office for the entity, tentatively named the Industry Rehabilitation Corp., while briefing members of the ruling Liberal Democratic Party on the issue.

The government has also decided to expand the scope of bad loans the new body will purchase, he said.

The government originally planned to make the entity buy bank loans, focusing on those that have been extended to companies that have received interest and other waivers or been put under supervision by the creditor banks.

But that will be expanded to cover parts of loans to companies on the verge of collapse, and to those in better condition but with a need to be closely monitored. Creditors tend to classify loans to the same firm under different risk categories, the official said.

The government plans to set up the new entity under Deposit Insurance Corp. to salvage companies considered still viable but at risk of going bust in the course of the accelerated bad-loan cleanup.

In its economic package released Oct. 30, the government unveiled a plan in which the body would purchase loans to these firms from secondary creditor banks, aiming to revive them jointly with the primary creditors. This body is to last for five to seven years.

At the LDP meeting, the anonymous official also explained the basic principles for setting up the corporate revival body, one of which is to avoid making it so rigid that it is incapable of responding to the specific needs of each industrial sector.

Other principles include those for making maximum use of private-sector expertise so the body can buy loans speedily and those for preventing the hazard of propping up struggling firms in a manner that leaves an industry with excess supply.

The government will also try to lift the burden on taxpayers as much as possible in case the body fails to revive certain firms, the official said.

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