The Financial Services Agency is preparing to issue an administrative order to five major banking groups that have received public funds but booked net losses for fiscal 2002 to improve their earnings, FSA sources said Tuesday.
The order, expected to be issued as early as the end of this month, will be directed at Mizuho Financial Group Inc., UFJ Holdings Inc., Sumitomo Mitsui Financial Group Inc., Mitsui Trust Holdings Inc. and Sumitomo Trust & Banking Co.
As many as 10 regional banks in similar situations will also receive the order, the sources said.
It would be the first time that the FSA has issued such an order to banks due to poor earnings.
In 1999, the government injected public funds into more than 30 financial institutions under a legal framework aimed at revitalizing the nation’s weak financial system.
Those banks submitted management restructuring plans with stated targets for net and operating profits and other areas.
The FSA has the authority to order banks to improve their earnings when they fall significantly short of the targets, but it has never done so, apparently to allow banks to concentrate on getting rid of bad loans.
The FSA has now changed its stance and plans to issue the order to urge banks to step up efforts to return to profitability, the sources said.
This time, the FSA will require directors at banks that receive the order to step down if they fail to meet earnings goals in the current fiscal year through next March, the sources added.
As part of efforts to clean up the banking sector, the FSA issued the so-called 30 percent rule in April under which it would order banks to improve their earnings when the level of net profits at banks with public funds falls short of their stated targets by 30 percent.
Major banking groups reported net losses for fiscal 2002 due to massive bad-loan disposals and the adoption of stricter calculation of deferred tax assets
Mizuho Financial Group, for example, posted a net loss of 2.38 trillion yen.