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The Financial Services Agency on Friday will order the management of five domestic banking groups to either improve their earnings by the end of the year or step down, FSA sources said Thursday.

Ten regional banks will also receive the administrative order.

All 15 banks have received public funds in the past to shore up their capital, and all also reported net losses for the year ended March 31.

The FSA claims the banks’ losses are too high. The five banking groups, however, said Wednesday their losses in fiscal 2002 did not stem from earnings shortfalls, but from bad-loan disposal and losses on shareholdings.

After the FSA issues the order, the 15 banks are expected to draw up rehabilitation plans, including ways to accelerate restructuring. They also must promise to swing back to the black for fiscal 2003 and the following years.

If they fail to meet targets, such as realizing profits in the current year, their management teams will be forced to step down, the sources said.

The five banking groups are Sumitomo Mitsui Financial Group Inc., UFJ Holdings Inc., Mizuho Financial Group Inc., Mitsui Trust Holdings Inc. and Sumitomo Trust & Banking Co., the sources said.

The 10 regional banks are Momiji Holdings Inc., Ashikaga Bank, Hokuriku Bank, Kumamoto Family Bank, Hokkaido Bank, Chiba Kogyo Bank, Yachiyo Bank, Higashi-Nippon Bank, Fukuoka City Bank and Wakayama Bank.

On Wednesday, the five banking groups told the FSA they booked losses in the past business year because they accelerated the disposal of bad loans and promoted the unloading of shareholdings to shield themselves from sharp falls in stock prices.

Such measures, they argued, were precisely in line with what the FSA had told them to do.

The FSA has the authority to order banks to improve earnings when they fall significantly short of their numerical targets. Such targets were set under the business improvement plans that the banks submitted to the FSA when they took public funds.

But the FSA has never done this before, apparently to allow banks to concentrate on bad-loan disposal.