Japan cuts off public money to bail out its failing banks

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Japan cuts off public money to bail out its failing banks

The announcement shed doubt on whether the nation can resolve a huge problem of bad loans within three years.

By Michael Zielenziger KNIGHT RIDDER NEWS SERVICE

TOKYO - Japan's banking czar dashed hopes for an early resolution to the nation's banking crisis yesterday when he flatly ruled out using any more public funds to prop up Japanese banks.

The action cast doubt on Japan's ability to solve its bad-loan problem within three years, as Prime Minister Junichiro Koizumi has pledged.

Hakuo Yanagisawa, Japan's minister for financial services, said it was "inconceivable" that the government would again contribute taxpayer funds to prop up the nation's dangerously troubled banks. Public assistance would erode market discipline, the banking chief said.

His comments suggest no end in sight to Japan's decade-long economic difficulties.

Yanagisawa suggested he would prefer that the nation's financial institutions gradually write down their bad loans during an indefinite period of years, using profits accumulated from continuing business.

Yanagisawa estimated that Tokyo's 15 major commercial banks now hold about 18 trillion yen, or about $146 billion, in nonperforming loans on their books.

Many analysts believe, however, that that figure is too conservative because it excludes a huge category of loans that have not yet been recognized by banks as nonperforming. In addition, Yanagisawa said that neither the nation's regional banks nor its weak credit cooperatives were included in his "provisional" estimate.

Yanagisawa's comments to foreign journalists came as Koizumi traveled to Genoa, Italy, to meet with leaders of the world's most powerful industrialized nations, the so-called G-8 leaders.

Japan's popular new prime minister has made quick resolution of the bad-loan crisis a cornerstone of his reform plan for the nation's troubled economy, even though he acknowledges that a faster pace of write-offs could trigger widespread unemployment and a surge of bankruptcies.

Still staggered from a pile of leftover debts accumulated from the wildly expansive period of the "bubble economy," the nation's banks have virtually stopped lending to new customers while cutting costs and services in an effort to generate profits. But a slumping stock market, which tumbled again yesterday, makes it increasingly difficult for banks to record profits on their massive portfolios of stock holdings.

The banks are digging themselves into a deeper hole. Forcing deadbeat companies into immediate bankruptcy would require banks to take an immediate loss. Instead, banks lend the companies more money so they can repay old loans and continue in business.

The huge overhang of debt also keeps Japanese firms from investing in new plants and equipment, further suppressing economic growth and employment opportunities.

Koizumi and his new economic minister, Heizo Takenaka, insist that a speedy resolution of the banking crisis is the single most important step the nation must take to help gain its footing. Takenaka is known to support another injection of public funds to help accelerate the final write-offs of nonperforming loans.

-------------------------------------------------------------------------------- Michael Zielenziger's e-mail address is mzielenziger@krwashington.com.

http://inq.philly.com/content/inquirer/2001/07/20/business/BANKS20.htm

-- Martin Thompson (mthom1927@aol.com), July 20, 2001


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