The combined balance of bad loans at the seven major banking groups appears to have dropped by 13 percent to 18.1 trillion yen during the six months to Sept. 30, according to banking sources.

Should relatively favorable economic conditions remain in place, the balance might fall below 15 trillion yen by March 31, giving further impetus to a nascent economic rebound, observers say.

The seven groups are Mizuho Financial Group Inc., Sumitomo Mitsui Financial Group Inc., Mitsubishi Tokyo Financial Group Inc., UFJ Holdings Inc., Resona Holdings Inc., Mitsui Trust Holdings Inc., and Sumitomo Trust & Banking Co.

The 18.1 trillion yen balance was computed under the official bad-loan disclosure standards mandated by the 1998 financial system revival law.

The law classifies three categories of loans as bad: loans to bankrupt firms, loans to firms at risk of failure, and loans to firms whose interest payments are in arrears for three months or more or whose repayment terms such as interest rates were softened.

The banking groups appear to have booked combined loan-loss charges of 2.1 trillion yen during the first half of the 2003 business year, the sources said.

The banking sources attributed the 13 percent fall in the bad-loan balance to better performances by corporate borrowers. Of the 2.1 trillion loan-loss charges, Resona Holdings accounted for the largest amount, at 1.26 trillion yen.

At Mitsubishi Tokyo Financial Group, some loans that had been classified as bad were reclassified as healthy after it helped straighten out the business conditions at some borrowers, they said.

Other banking groups also intervened in the management of their corporate borrowers, thus improving their businesses and reducing bad-loan sums, they said.

In addition, the number of companies whose liabilities to banks were newly classified as bad loans during the six-month period fell sharply compared with fiscal 2002, thanks to the economic rebound, the sources said.

The only group whose bad-loan balance increased during the six-month period was Resona Holdings. It got a 1.96 trillion yen government injection earlier this year and then stiffened its criteria in assessing the quality of outstanding loans.

Some banking groups cut bad-loan balances by selling the collateral real estate that was backing outstanding loans to firms whose rehabilitation appears almost impossible to the government’s Resolution and Collection Corp. and foreign investment funds.

Sumitomo Mitsui Banking Corp. President Yoshifumi Nishikawa said, “Our bank would like to reduce our bad-loan balance by an additional 1 trillion yen during the latter half of the current business year.”

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