Sat, Jul 26, 2003 - Page 10 News List

Japanese banks may face regulatory action

BLOOMBERG

Japan's government is giving Mizuho Financial Group Inc, Sumitomo-Mitsui Financial Group Inc, and rival banks until July 30 to explain their failure to meet profit goals in return for taxpayer-funded bailouts after 1999.

The deadline, contained in a letter sent to banks, calls for the lenders to make a case to regulators detailing why they missed targets. The two-page document also outlines corrective action if regulators view the explanation as inadequate, including forcing the banks to submit new business improvement plans by Aug. 29, according to a copy obtained by Bloomberg News from one of the banks.

"We can't comment on any pending cases about specific banks," said Hirofumi Gomi, chief of the supervisory bureau at Japan's Financial Services Agency, Japan's banking regulator.

The government previously warned banks to meet lending targets to small businesses set when it extended public funds to bolster their capital. The possibility regulators will also hold banks accountable for profit goals marks a tougher stance by the government, and one that is opposed by some lawmakers, who say unhappy lenders are being asked to write off bad loans and be profitable at the same time.

None of the nation's top seven lenders booked net income during the two years ended March 31, racking up a combined net loss of ?8.7 trillion (US$73 billion) during the period.

Japan transferred ?8.6 trillion to predecessors of Mizuho, Sumitomo Mitsui, UFJ Holdings Inc and other banks during the three years from March 1999, demanding they devise and meet financial goals. Bank officials declined to comment on the letter from the Financial Services Agency setting a deadline next week.

Mitsubishi Tokyo Financial Group Inc, Japan's third-largest bank by assets, is the only one of the country's seven big lenders that doesn't owe money from the government bailouts.

Banks that fail to persuade the regulators about the reasons for not meeting previous goals will have to demonstrate how they can achieve future targets, according to the letter. They will also be required to provide progress reports every three months to the regulators, the document said.

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