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Japanese Banks Post Profits - 2002-11-26

Most of Japan's big banks post profits for the first six months of the year, but they remain weighed down by bad debts and a sluggish economy. Three of Japan's four largest banking groups report earnings improved for the first half of the year. But they face severe difficulties from bad loans and the sliding stock market.

Mizuho Holdings, the world's largest bank in terms of assets, returned to profitability thanks to cost cutting. First-half profit totaled $318 million. The bank pledges to move forward with restructuring through more job cuts and branch closures.

UFJ Holdings, seen as the weakest of Japan's banking giants, reported earnings of $592 million, but at the same time posted a sharp drop in revenue. Sumitomo Mitsui saw a $448 million profit, up 61 percent from a year ago.

However, Mitsubishi Tokyo Financial Group lost $1.5 billion, nearly doubling its loss from the same period last year. Mitsubishi Tokyo's President Shigemitsu Miki says his target is to cut the bank's bad loans by half within several years.

While the other big banks announced improvements, they, too, are saddled with staggering bad loans, thought to exceed $400 billion. The banks face the painful process of getting rid of those bad debts, which block new lending and have paralyzed the banking sector.

Most of the loans were made during Japan's boom years in the 1980's, but many of the borrowers are now bankrupt. Adding to the banks' woes is Tokyo's stock market slump. The benchmark Nikkei Average recently sank to a 19-year low. Japan's banks are major shareholders, and their equity market losses also hurt their bottom line.

Prime Minister Junichiro Koizumi has repeatedly vowed to speed up government efforts to slash the banks' bad debts. In Parliament Monday, he told legislators that his stance has not changed and confirmed that a plan would be unveiled later this week to help the banks.

Mr. Koizumi in September appointed a new economy and banking minister, Heizo Takenaka, who is trying to force banks to clean up their loan portfolios. Mr. Takenaka, viewed as an aggressive reformer, accuses them of covering-up the extent of their bad debts and hints the government could take over banks if improvements are not made.

While the banks say they will boost loan loss charges and include them in their full-year earnings reports, analysts warn that many financial institutions will need public funds to stay afloat.