Japan's bad loans put at $1,200bn
By Gillian Tett in Tokyo
Published: April 19 2001 16:46GMT | Last Updated: April 20 2001 00:37GMT
The true value of problem loans in Japan's financial system has reached ¥150,000bn ($1,200bn), officials in the Democratic Party of Japan, the largest opposition party, said.
This figure, compiled from government data, represents more than a quarter of Japan's gross domestic product and is far higher than the usual government estimate of ¥33,000bn.
The figures could rekindle a debate about the true size of the country's bad assets, particularly since the weak economy is creating new problem loans.
Officials at the Financial Supervisory Agency, the main banking regulator, yesterday confirmed that the ¥150,000bn figure was compiled from its own data. However, it argued that the DPJ had used an unnecessarily alarmist definition of a problem loan.
At the heart of the dispute is the difficulty of defining a good loan in Japan. In countries such as the US, where bankruptcies occur quickly and property markets are liquid, it is often easy to decide whether a loan is bad, and how much collateral can be collected. However, in Japan the property market is illiquid, making it hard to measure the value of collateral. And insolvent companies are often kept alive for years, creating loans which are neither entirely good nor actually bad yet.
The FSA claims the distinction between doubtful and bad loans reflects the same guidelines used by US banking authorities. However, critics of the FSA retort that because companies in Japan are much more opaque these US guidelines do not always translate well into the Japanese situation.
Until now the banks have tended to label doubtful loans "good", since they hoped the economy would recover. But in the current economic downturn many doubtful loans are turning sour, and the value of collateral held against them has collapsed because land prices are still declining.
The FSA data say banks hold ¥33,000bn of clearly bad loans, to bankrupt companies. However, they hold another ¥117,000bn of loans that need "careful monitoring", known as "category two" - or potential problem loans. It believes only ¥14,000bn of the ¥117,000bn category two loans are currently bad.
However, the DPJ argues that a much higher level of category two loans are turning sour than the banks or FSA admit. Consequently it argues that the government should use the entire ¥150,000bn figure of clearly bad and potentially bad loans when it plans any package to tackle the banks' problems. "Many loans are misclassified and the value of the collateral held is often doubtful," an DPJ official says.
The government recently unveiled an emergency package which demanded that banks remove all their bad loans in the next three years. However, this time limit only applies to the Y33,000bn of clearly bad loans.
The DPJ's concerns are shared by many bank analysts and the Bank of Japan. And although some analysts think it is an exaggeration to label all the ¥117,000bn category two loans as "problem" loans, most analysts believe the government is understating the problem. |
