Bad debts hitting Japanese banks By Bayan Rahman in Tokyo Published: November 22 2000 11:34GMT | Last Updated: November 22 2000 14:32GMT

Japanese banks still face a mountain of bad debts, as nine of them announced interim earning results on Wednesday, just as Chiyoda, a leading engineering company, asked for ¥26.2bn ($260m) of debt to be written off.

Most of the nine banks saw profits decline or stayed in the red in the six months to end-September. They face problems stemming from a fragile economy, a weak stock market and loan quality issues, industry analysts warned.

Bank of Tokyo-Mitsubishi (BTM), one of a few majors banks to voluntarily adopt a new-mark-to-market accounting change, posted a 43 per cent decline in group interim net profits because of falling stock prices and a ¥128.9bn loan-loss charge to deal with bad debts.

It said problem loans rose to ¥2,090bn by the end of September, up from ¥1,840bn for the whole of last year.

BTM's group net profits fell to ¥38.06bn, down from Y66.7bn in the same period last year.

Sanwa Bank said group net profits fell 47 per cent to ¥267.7bn, from ¥52.3bn, after taking a ¥169.1bn loan-loss charge.

The most pressing problem is that of bad loans, highlighted by Chiyoda's plea for a debt write-off.

Japan's 17 leading banks had estimated they would book loan loss charges of ¥1,500bn in the year to end March 2001, but they are likely to be near that level already and will probably book at least double that amount in the full year.

"Clearly the Japanese banks have made progress in dealing with bad debts (compared with a few years ago). The problem is new bad debts continue to arise," said Walter Altherr, banking analyst at Credit Suisse First Boston in Tokyo.

"You're facing plateauing economic growth, substantial deflation and significant restructuring. We are going to continue to see many years of bad debt charges ahead of us."

The banks, which made gains on securities sales and bond trading last year, are facing a declining stock market and most of them have yet to generate income from lending, fees or other sources.

"The banks are still lending but the problem is their funding costs have risen and the margins on lending are starting to deteriorate. It's a huge issue. The market is working against them because there isn't a lot of loan demand and lending has become quite competitive," said James Fiorillo, senior analyst at ING Baring in Tokyo.

Japan's banks will also have to adopt new mark-to-market accounting rules for their securities holdings from the year starting in April.

The move, part of the "Big Bang" financial deregulation, means the banks will measure securities and other financial assets at market prices rather than book value.

-- Carl Jenkins (somewherepress@aol.com), November 22, 2000