A coalition task force scrutinizing financial policies on Tuesday approved a legal amendment aimed at reinforcing the functions of a stock-purchasing body, lawmakers said.

Financial policymakers within the Liberal Democratic Party, New Komeito and the New Conservative Party have finalized a bill that seeks to abolish banks' obligation to contribute 8 percent of their stock sales to Banks' Shareholdings Purchase Corp.

The amendment to the law that governs banks' shareholdings is expected to be submitted to the Diet later this week, the lawmakers said.

The mandatory 8 percent contribution is viewed as a hindrance to banks' use of the corporation, which was established in January 2002 by more than 100 financial institutions nationwide to help banks reduce their cross-held shares.

The coalition lawmakers said the amendment aims to spur Japan's moribund stock market, with sales of cross-held shares having exacerbated the supply-demand imbalance.

Currently, the corporation's maximum allowable purchase of bank shares from other businesses stands at around half the amount of shares of nonbank businesses it buys from banks. The revised law would eliminate this difference, they said.

The bill also features a five-year extension of the stock-purchasing body's existence, with the termination of operations having originally been scheduled for 2012, the lawmakers said.

Moreover, the task force has decided to defer by two years the implementation of a clause limiting banks' shareholdings to levels within their own capital, a rule that was due to be implemented in September 2004, they said.

Further debate will be conducted on a contentious proposal to freeze the mark-to-market method of accounting regarding the value of stocks held by companies, the lawmakers added.

Takenaka pleased

Financial Services Minister Heizo Takenaka on Tuesday hailed efforts by major banks to dispose of bad loans in the year that ended March 31.

Speaking a day after banks reported earnings for fiscal 2002, Takenaka said they made a "good start" in meeting the government target to halve the ratio of banks' bad loans against their total outstanding lending by March 2005.

"Under severe economic situations, the earnings results showed that (banks) made considerable efforts to put an end to the bad-loan problem," Takenaka said. "If they keep up disposing of soured loans at the current speed, they will meet our target."

Japan's major banking groups reported Monday they all posted net losses for fiscal 2002 because of bad-loan disposals and valuation losses on shareholdings amid deflation and lower stock prices.

They posted a combined 5.6 trillion yen in bad-loan disposal costs, driving the combined outstanding balance of their bad loans under government rules as of March 31 to 20.8 trillion yen, down by 6 trillion yen from the previous year.

They also cited stock-related costs and the adoption of stricter accounting methods to gauge core capital as key factors in lowering capital-adequacy ratios.