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Wed, Mar 13, 2002 - Page 21 News List

Japanese banks near crisis


Japan has taken sufficient steps to escape a financial crisis this month, a top minister said yesterday, although another official warned banks remain hobbled by massive bad loans.

Some analysts had forecast a banking crisis before the fiscal year end on March 31 as bad loans mounted, banks' holdings of shares plunged in value and depositors fled weaker lenders ahead of the partial lifting of a government guarantee on deposits.

"We have already taken enough measures to prevent a so-called March crisis, including concerns over the payoff [deposit guarantee] scheme," Chief Cabinet Secretary Yasuo Fukuda told a regular news conference.

The government will replace a blanket guarantee on most bank deposits with a cap of ?10 million (US$78,000) on time deposits from April.

It has also tried to shore up public confidence in the banking system by announcing the creation of a special bank in late March to take over operations at collapsed lenders.

But surviving March without a crisis was "a minor issue," warned Financial Services Minister Hakuo Yanagisawa.

"I think it is more important to do what needs to be done, like the disposal of non-performing loans and reduction of banks' shareholdings," he said.

"What is important is to regain [investors' and consumers'] confidence in the Japanese financial system. We must do whatever needs to be done to achieve that goal," he told a separate press briefing.

"Compared to that goal, the question of whether or not [banks] can survive until the end of the fiscal year in March is a minor issue."

Tokyo has promised to add ?2 trillion this fiscal year and another ?2 trillion by March 2003 into a stock-buying body to acquire some of banks' massive share portfolios and reduce their exposure to stock price swings.

It will also beef up operations at the state-run Resolution and Collection Corp -- a bad-loan buying body -- to accelerate write-offs of non-performing loans.

The moves, along with tighter restrictions on short-selling, have helped fuel a recent stock market rally, which has seen the headline Nikkei-225 index rise around 20 percent in the past month.

But the bad loan problem remains undiminished, said Hirokazu Yuihama, senior strategist at the Daiwa Institute of Research.

"Given that, the market will likely stay in a correctional phase after April," he said.

Japanese banks hold ?36.8 trillion in loans according to Tokyo's conservative estimate, while some private analysts say the real total is over five times higher.

The government is pressuring banks to write off bad loans, cited as a root cause of Japan's economic slump, but observers say it must also inject public money into banks as more loans turn sour.

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