NEW YORK (Kyodo) Japan’s banks should become globally competitive by carrying out “proactive reforms” and not dwelling on “reactive reforms,” such as bad-loan disposal, Financial Services Minister Heizo Takenaka said Thursday.

One of the challenges facing the banking sector is “how to raise profitability and how to increase the efficiency of asset management,” Takenaka said in a speech at the Japan Society in New York.

Before the talk, he told reporters he cautiously welcomes the basic merger agreement between UFJ Holdings Inc. and Mitsubishi Tokyo Financial Group Inc.

“This demonstrates that each bank is making efforts to move beyond the passive stage of writing off bad loans to the next stage of increasing profitability and international competitiveness,” he said.

During a question-and-answer session after his speech, he downplayed the so-called overbanking problem and said numerical targets for bad-loan disposal only apply to big banks.

“It is not appropriate” to set such targets for regional banks, Takenaka said, referring to what he calls regional banks’ “relationship banking” and community-oriented activities.

But the government is asking regional banks to come up with “more solid governance systems,” he added.

He also said deflation is still “a headache” for the government but gave a positive assessment of the economy, whose recent growth has been led mainly by private demand.

He restated his position that Japan’s state-run postal operations should be privatized, referring to “invisible subsidies,” such as Japan Post’s tax-free status.

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