Japanese regulators have issued a generally upbeat report on the nation's troubled banking sector, saying that banks have the resources to cope with their bad loans. But the banks' problems are far from over and many face steep losses.
Japanese Financial Services Minister Hakuo Yanagisawa said the government does not need to spend public money to support the banking system. He said the banks have adequate capital to protect their financial health.
He told reporters that he would not hesitate to take measures, including injecting public funds, if problems arise in the financial system. Mr. Yanagisawa made the comments after Japan's Financial Services Agency unveiled its long awaited report on the banking industry Friday.
The report said the FSA's inspections show that banks are fairly healthy. However, it said banks will book additional losses of more than $14 billion to write off bad debts for the last fiscal year. That means for the year, loan losses will top $60 billion.
Japan has been mired in an economic slowdown for more than a decade. Many companies are defaulting on loans, overburdening the banking sector. As a result of the bad-loan mountain, Japan's top four banking groups forecast losses for the last business year.
The FSA has set a three-year time frame for banks to eliminate any core bad loans, defined as those to companies that have gone bankrupt or are in danger of doing so. This is in line with Prime Minister Junichiro Koizumi's pledge to revitalize the sector. The FSA also will step up bank inspections and encourage mergers among regional financial firms.
Reflecting the banking industry's woes, a private Japanese research firm said Friday that corporate bankruptcies rose for the third month in a row. Company failures increased five percent in March from a year earlier, to more than 1,700 cases.
In a separate report, the Bank of Japan on Friday slightly upgraded its economic assessment in April for the second straight month, saying there are signs the nation's economy may soon bottom out. It kept its ultra-easy monetary policy unchanged Thursday, to encourage stability in the financial markets and banking system. The policy helps keep cash circulating in Japan by keeping borrowing costs low.