Repost: Moody's spotlights Japan bank sector's loan woes
Reuters Story - May 27, 1998 03:31
ÿÿÿ By Fumiko Fujisaki
ÿÿÿ TOKYO, May 27 (Reuters) - A slew of downgradings of Japanese
banks by Moody's Investors Service throws into sharp focus the
need for authorities to quickly solve the bad loan problems of
the nation's banking sector, analysts said.
ÿÿÿ On Wednesday the U.S. rating agency said it had cut ratings
of five major Japanese banks, including Bank of Tokyo-Mitsubishi
Ltd , the world's biggest bank, and put ratings of four
others under review for possible downgrade.
ÿÿÿ Moody's said in a statement that Japanese banks were "facing
a third wave of asset quality problems because of weakening
domestic economy, on top of existing problems resulting from the
East Asian crisis and the collapse of the bubble economy."
ÿÿÿ Analysts said it was rare for Moody's to downgrade Japanese
banks in a group. In the past it has generally cut ratings of
Japanese banks one by one, they said.
ÿÿÿ "Moody's slew of downgradings shows that it is not a matter
of specific Japanese banks any more," said Naohiko Hasegawa, a
financial analyst at Nikko Research Center.
ÿÿÿ "It seems to me that Moody's cut ratings of Japan's overall
banking sector and this is a challenge to authorities to
reorganise the sector without further damaging the
already-deteriorated economy," he said.
ÿÿÿ Aside from Bank of Tokyo-Mitsubishi (BTM) -- considered one
Japan's healthiest banks -- the credit ratings of Dai-Ichi
Kangyo Bank Ltd Sakura Bank Ltd Industrial Bank of Japan Ltd
(IBJ) and Sumitomo Bank Ltdÿ were downgraded.
ÿÿÿ Moody's also placed the ratings of the Long-Term Credit Bank
of Japan (LTCB), Asahi Bank Ltd , Fuji Bank Ltd and Tokai Bank
Ltd under review for possible downgrade.
ÿÿÿ In February, the agency lowered its long-term debt rating on
Fuji Bank to A3 from A1 and its financial strength rating to D+
from C. Then in March, it cut LTCB's senior debt rating to Baa3
from Baa2 and the financial strength rating to E from E+.
ÿÿÿ Moody's is not alone in warning that deflationary pressures
in Japan may result in more corporate failures, which would
increase bad loans held by banks and thus hurt the fragile
economy further.
ÿÿÿ Robert Feldman, chief economist for Japan at Morgan Stanley,
said, "Until they clean up the banking mess, the economy won't
recover... That's precisely why the government is being more
aggressive with the clean-up plan."
ÿÿÿ The need to deal with massive bad loans held by Japanese
banks is one of the top priority issues cited by Prime Minister
Ryutaro Hashimoto at the Birmingham summit of the Group of Eight
leading industrial nations earlier this month.
ÿÿÿ However, analysts said that official efforts to solve the
problem have been slow and that time may be running out.
ÿÿÿ Ruling politicians see an inevitable reorganisation of the
banking sector, but they have not yet determined under which
conditions to save banks and under which to let them fail,
analysts said.
ÿÿÿ Among the worries is that Japan could face another crisis
later this year because under a new supervision system, banks
may pull the rug out from under troubled construction firms.
ÿÿÿ The banks have not set aside reserves for potential losses
on loans to troubled builders since the companies are keeping up
with their interest payments, analysts said.
ÿÿÿ The Asian economic crisis, heightened by the political
unrest in Indonesia, is also casting a long shadow over the
banks' health, they said.
ÿÿÿ Moody's announcement came only days after the nation's top
18 banks reported that they had spent over 10 trillion yen to
cover existing and potential loan losses in the business year
which ended on March 31.
ÿÿÿ Of the 18 banks, 13 reported current losses for 1997/98.
ÿÿÿ "We had expected poor results, but the outcome was worse,"
said an analyst at a foreign firm. "In the past eight years, the
top banks have posted nearly 40 trillion yen of loan loss
charges, but they still have lots of potential bad loans,
including outstanding questionable loans."
ÿÿÿ The top 18 banks said recently that they had 21.7 trillion
yen of problem loans as of the end of March under their new
disclosure rules, based on the U.S. model. The figure
represented a jump of nearly 40 percent from the previous
disclosure rules.
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