Japan's efforts to clean up the banking system will enter a new phase this spring when the government sets up a new body to help revive overly indebted but potentially viable borrowers. The "industrial revitalization corporation" will buy doubtful loans from creditor banks (excluding main creditor banks) and, working in tandem with the main lenders, support the reconstruction efforts of those borrowers.

The new body is different from the existing Resolution and Collection Corporation, or RCC, which buys bad loans from potentially nonviable borrowers. Loans will be purchased anew on the premise that borrowers will be able to pay off their debts in a reasonable period of time through restructuring, such as cutting off unprofitable operations. These borrowers are currently getting relief from creditor banks in the form of debt rollovers and such.

The central question for the new institution is whether it will be able to achieve its stated objective of promoting industrial readjustment through debt cleanup. The answer depends, first and foremost, on whether banks are willing to sell loans to it. The creation of a new loan-purchasing entity, even though it has the blessing of the government, is in itself no assurance that the banks will sell willingly. Experience suggests they are not likely to do so unless reasonable inducements are offered.