BACK IN THE BLACK
Major Banks Retake the Initiative (April 2, 2004)
As they work to quickly wipe away the longstanding problem
of nonperforming loans, major banks in Japan appear set to rise again. Work on
setting aside and disposing of nonperforming loans has been furthered by increased
capital and the establishment of corporations intended to rehabilitate private-sector
borrowers. At the same time, the business environment is improving, as share prices
have stabilized, the economy is growing, and deregulation is going forward. Banks
have the wind at their backs now, and they are looking to go on the offensive.
|Banks on a Tokyo street (PANA)
Disposal of Nonperforming Loans Proceeding
In his policy address to the Diet on January 19, 2004, Prime Minister Koizumi
Junichiro stated, "The total amount of nonperforming loans of major banks
has fallen by more than ¥9 trillion [$81.8 billion at ¥110 to the dollar]
over the past 18 months, and the nonperforming loan ratio is also steadily decreasing
toward the target figure." The nation's goal is to reduce by half the amount
of nonperforming loans as a percentage of all loans from March 2002 to March 2005,
and Koizumi expressed confidence that this goal will be met. In addition, he pledged
that "the nonperforming loan issue will be resolved in fiscal 2004 [April
As of the end of September 2003, the average ratio of nonperforming loans as a
percentage of total loans of the six major banking groups was 6.5%, a drop from
the level of 8.3% recorded at the end of March 2003. In particular, Sumitomo Trust
and Banking Co. and the Mitsubishi Tokyo Financial Group have already met the
target, as nonperforming loans now account for just 3.4% and 3.8% of their total
lending, respectively. While it has not yet reached its target, the Mizuho Financial
Group cut the amount of its nonperforming loans by ¥1.09 trillion ($9.9 billion)
over a year ago. Sumitomo Mitsui Banking Corp. did likewise by cutting its nonperforming
loans by ¥1.86 trillion ($16.9 billion), and UFJ Holdings reduced the amount
it carries by ¥1.31 trillion ($11.9 billion). Mitsui Trust Holdings wiped
¥20.62 billion ($187.5 million) in nonperforming loans off its books, roughly
one-quarter of the balance.
There are some in the financial world who are of the opinion that a number of
large companies may be weeded out when the cap on deposit insurance is lifted
in April 2005. High-ranking officials at the Bank of Japan, however, believe that
the crushing weight of nonperforming loans has been shed and that the banks are
entering an environment in which they will reexamine their defensive practice
of holding off on lending. Among the group of corporations expected to do well,
Mitsubishi Tokyo Financial Group is working to improve its efficiency and profitability;
it hopes to be in the top 10 worldwide in terms of the aggregate market value
of its listed stock. To accomplish this ambitious goal, the group plans to open
as many as 20 new branches among its banks, trusts, and securities companies within
fiscal 2004. The hopes are that increased cooperation among the three sectors
will strengthen each one and allow the group to obtain some 30,000 new clients
among small- and medium-size enterprises. The group also intends to increase its
sales of life insurance by investing in Manulife.
Deregulation Seen as Advantageous
The main factor behind this more aggressive and forward-looking approach has been
deregulation aimed at eliminating barriers between the banking, insurance, and
securities sectors. Consumers can now purchase stocks at their local bank. In
the five years since the ban was lifted, banks have come to account for more than
40% of all sales of investment trusts; meanwhile, nearly 60% of individual annuity
insurance is being handled by banks.
Looking at the sales of major banks, the top institution is Sumitomo Mitsui Banking
Corp., which had reached ¥1.8 trillion ($16.4 billion) in sales of investment
trusts and ¥250 billion ($2.27 billion) in sales of individual annuity insurance
as of the end of September 2003. Each major bank is casting a web of branches
across the country and honing its employees' business skills in order to display
The insurance and securities industries are under pressure as banks extend their
reach, but at the same time they are fighting back against companies offering
online sales of Japanese and foreign securities by setting up sales booths inside
major banks, enabling them to attract more individual investors. This intense
competition is working to invigorate banks as well.
During his policy address at the Diet, Koizumi emphasized that tie-ups between
banks and securities firms would serve to develop the securities market, and he
stated that deregulation would continue to progress. In addition to lifting the
ban on banks' participation in the securities market within 2004, plans call for
allowing banks to begin sales of insurance covering medical expenses or loss of
life next year. Major banks are working to completely regain their health by offering
integrated financial services.
Related Web Sites
Sumitomo Trust and Banking Co.
Mitsubishi Tokyo Financial Group
Mizuho Financial Group
Sumitomo Mitsui Banking Corp.
Mitsui Trust Holdings
Bank of Japan
Copyright (c) 2004 Web Japan. Edited by Japan Echo Inc. based on domestic Japanese news sources. Articles presented here are offered for reference purposes and do not necessarily represent the policy or views of the Japanese Government.
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