Japan's top banking regulator, Heizo Takenaka, will force lenders to recognize more loans as bad this fiscal year, a move that may widen the US$2.5 billion in losses expected by the nation's four largest banks.
His draft plan said regulators will inspect banks to ensure they adhere to tighter loan standards, and will start a review of what banks can count as capital. The plan gives few specifics on the new criteria for bad loans, which officially total more than US$430 billion.
Banks and some lawmakers had lobbied against an Oct. 30 outline of the plan, fearing increased bankruptcies and unemployment would deepen the nation's 12-year economic slump. The draft plan suggests a compromise, giving banks more time to boost their capital and avoid being taken over by the government.
"It may be deliberately vague to skirt opposition from lawmakers," Muneyuki Tsuji said, who manages ?15 billion at Japan Investment Trust Management Co.
"It's almost impossible to tell how much impact it will actually have on banks," Tsuji said.
Mizuho Holdings Inc shares surged, closing 7.4 percent higher at ?131,000 on the Tokyo Stock Exchange.
Japan's biggest bank and its top three rivals this week said they will lose a combined ?305 billion (US$2.5 billion) this fiscal year, as they speed bad-loan disposals and the value of their shareholdings tumbles.
Several banks increased provisions to prepare for more stringent loan assessments required by the plan, and indicated profit projections may be revised to take account of the plan.
Under the draft plan, Takenaka will enlist lawyers, accountants and real estate consultants to tighten scrutiny of borrowers and banks.
The question is "whether Takenaka can rally support, which may require a bit of give-and-take, such as backing off on more stringent classifications of bank capital," said John Litschke, who helps manage US$600 million in global equities at Loomis Sayles & Co in San Francisco.
Takenaka, a former professor, today discussed the plan with officials from the three-party ruling coalition. He said he aims to publicly release details of the plan tomorrow.
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