The annual financial results of Japanese banks are shaping up to reveal a landscape stocked with dinosaurs, bogged down in the swamp of their bad debts and incapable of evolving to meet the radical upheaval in their surroundings.
The figures made public this week delivered a depressing verdict: non-performing debts grew faster than provisions, business volume continued to decline, sale of assets -- real estate or shares -- which have continued to depreciate have not been able to plug the holes and profitability is light years from the norms demanded in other developed countries.
For Kenneth Courtis, vice chairman of Goldman Sachs Asia, the situation in the banking system is a key element in the "threat" Japan poses to the global economy.
"After a decade of decline, rising debt and building deflation, without radical change, the economy and financial system are set to enter an unprecedented crisis," he said.
"A deflation-driven financial implosion in Japan would have vast global economic, financial and political implications," he added.
Top International Monetary Fund official Charles Collyns, who is here to examine the Japanese economy, warned that the authorities had a duty to be prepared to intervene. "The government has to be ready to face emergencies," he said.
According to official statistics compiled by Goldman Sachs, the Japanese banking system is to all intents and purposes bankrupt, faced with an "immediate capital shortfall" of ?53 trillion (about 500 billion euros, US$440 billion).
Potential losses at the end of March 2001 were put at ?105,000 trillion (allowing that 30 percent of the ?150,000 trillion debt owed by troubled businesses is recoverable) while reserves against losses account for ?52 trillion.
Faced with this gaping hole, Japanese banks are dramatically under-capitalised: ?22,300 trillion in tier one capital, including tax credits and preferential shares held by the government since the injection of public funds in 1999.
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