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The Financial Services Agency on Friday ordered Mizuho Holdings Inc., the world’s largest banking group in terms of assets, to increase loans to smaller companies and submit guidelines for doing so by the end of this month.

The nation’s financial regulator took the action following a failure by Mizuho’s two core banks to extend loans to small and midsize firms, as mandated in a business plan it created in exchange for an injection of taxpayers’ money four years ago.

Friday’s order also calls on Mizuho to inform the FSA every three months of how its lending program is progressing.

The FSA has previously issued similar orders to Shinsei Bank, UFJ Holdings Inc. and Asahi Bank. This is the first time, however, that the agency has issued such an order near the end of a fiscal year.

While other major banking groups have failed to live up to similar commitments also made in return for injections of public funds, the FSA apparently singled out Mizuho because decreases in outstanding loans held by its two banks — Mizuho Bank and Mizuho Corporate Bank — were much larger than at other banks.

In the fiscal first half, which ended Sept. 30, Mizuho’s outstanding loans to small and midsize firms fell by more than 5 trillion yen.

Mizuho blamed the dropoff on sluggish business conditions and decreasing loan demand by smaller companies, but the FSA concluded it needed to act in view of growing public criticism of the major banks’ get-tough posture toward smaller firms.

RCC ups purchasing

The state-run Resolution and Collection Corp. said Friday that the book value of its purchases of soured bank loans between January 2002 and March this year is likely to come to 2 trillion yen, indicating an acceleration of the cleanup process.

The acceleration has been attributed to a revision of the financial system revival law in January 2002, under which the RCC is allowed to purchase bad loans at higher-than-market market value. Before the law change, the RCC bought bad loans at their deteriorated market values, as it was effectively barred from incurring losses as a result of its purchases.

This held up the process, however, as banks refused to take big losses in selling their soured loans.

In the 12 months to March 2002, the RCC bought bad loans totaling 330 billion yen.

In addition to the law change, “the rise (in RCC purchasing) was a result of increased pressure on banks to accelerate their disposal of bad loans,” RCC President Akio Kioi told a news conference.

The state corporation said it has already received applications from banks looking to sell bad loans worth more than 1 trillion yen in the current January-March period.

It has also received invitations to participate in bids for bad-loan sales of between 200 billion yen and 300 billion yen, it said.

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