On April 1, the government's limited deposit guarantee, known as the "payoff" system, took full effect as scheduled. So far, the measure hasn't resulted in any visible disturbances, such as a major shift of funds out of bank accounts. Why?
One of the reasons is that the worst is over for the nonperforming loan problems at Japan's major banks. The government's target of halving by the end of March the ratio of bad loans to overall bank lendings from fiscal 2001 levels, when the outstanding amount of nonperforming loans stood at a peak of 43 trillion yen, has nearly been achieved.
One of the major banking groups has announced plans to repay all money injected by the government earlier than scheduled. The repayment of the public funds will free banks of state involvement in their management, including requirements on lending to small and medium-sized borrowers and limitations on their personnel costs. I think we can say that the major banks have finally pulled themselves out of their nonperforming loan woes and are beginning to look to the future.