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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (5892)	3/27/2002 5:52:31 PM
From: John Pitera	Read Replies (3) \| Respond to of 33421

Bad Loans at Major Japanese Banks Are Seen Swelling to $180.53 Billion Nikkei Net Interactive TOKYO -- Nonperforming loans held by the nation's major banks are now expected to balloon to more than 24 trillion yen ($180.53 billion) as of the March 31 close of the fiscal year, up some 20% from the end of September and nearly 40% from a year ago, The Nihon Keizai Shimbun has learned. The sharp increase in bad loans reflects a combination of factors, including economic deterioration and tighter internal assessments by the banks themselves. The leading banks are trying to contain the growth of nonperforming loans by either helping to restructure ailing corporate borrowers or pushing companies with little prospect of recovery into bankruptcy proceedings. But new bad loans are emerging faster than banks can clear away existing ones. The 12 major banks -- Sanwa Bank and Tokai Bank merged in January to reduce the group by one -- reported 17.68 trillion yen in nonperforming loans as of March 31 last year. The bad-loan figure increased to 20.14 trillion yen as of Sept. 30. But bad loans at the 12 banks are now likely to increase by another 4 trillion yen as deflationary pressures in the economy give rise to new troubled borrowers, and special regulatory examinations launched by the Financial Services Agency last fall pressure banks to take a tougher line in assessing the credibility of their borrowers. The increase in bad loans will have a negative impact on banks' earnings performance on two levels, analysts say. First, banks will have to book loan loss charges in order to boost reserves against potential losses. Moreover, in cases in which banks are waiving a portion of loans to troubled borrowers or writing off their entire exposure, they will have to book charges to account for any losses not covered by existing set-asides. The major banks are expected to book total loan loss charges of 7.5 trillion yen in fiscal 2001, up by about 1 trillion yen from the figure projected in November last year. The view is also widely held that the top banks will have to book another 6 trillion yen in loan loss charges in the coming fiscal 2002 year -- a figure that far outstrips projected profits from core banking operations. When banks are unable to cover loan loss charges with core business profits, the result is net losses, which eat into shareholders' equity. The upshot is that banks are being pressured to move quickly to bolster their core profitability while taking steps to shore up their capital bases. Updated March 27, 2002 12:36 a.m. EST online.wsj.com