Japan pushes for banking reform with tougher rules
By Mariko Iwasaki
Bloomberg News Service
TOKYO — Former Japanese tennis star Kimiko Date used to worry about beating rival Steffi Graf. These days, she frets about where to put her cash.
Associated Press
With this month's scrapping of a government guarantee on time deposits of more than 10 million yen ($75,100), the former World No. 4-ranked player — and millions of other Japanese depositors — are moving their money in record numbers.
A teller talks with a depositor at Mizuho Bank headquarters in Tokyo. Japan is implementing tougher rules designed to reform a banking industry suffering from billions of dollars in bad loans.
"I'm thinking about dividing my deposits into smaller lots and putting them at different banks," said the 31-year-old, who retired in 1996.
The change, to be followed by the scrapping of blanket guarantees on all deposits next year, is part of a government push to reform a banking industry beset by a stagnant economy and billions of dollars of bad loans.
For lenders such as Mizuho Holdings Inc., the world's biggest bank by assets, and Sumitomo Mitsui Banking Co., the world No. 2, it means closer scrutiny from customers. For some smaller banks it may mean collapse.
"Depositor scrutiny of financial institutions will become tougher, and banks must seriously think about differentiating themselves from rivals," said Toru Komatsu, an independent fund manager who advises individual investors at Komatsu Portfolio Advisors Co. "The industry should've worked that way long ago."
In the year to February, the amount in time deposits fell by 6.4 percent, the biggest decline since the Bank of Japan started keeping records in 1967. At the same time, demand for "at-call" accounts rose by a fifth.
The tougher rules are part of increased government pressure on banks as the industry struggles to deal with trillions of yen of non-performing loans that aren't being repaid.
The banks' problems are exacerbated by a benchmark stock index that's lost a fifth of its value in a year and an economy struggling with deflation. Japan's banks owned about a quarter of 2,587 listed stocks last March, according to National Conference of Stock Exchanges, and the value of property pledged as collateral for loans has been sliding for 11 years.
Since 1990, Japan's largest city and trust banks have either merged or collapsed into nine from 21. The mergers were aimed at boosting the banks' international competitiveness, and as a result created the world's three largest lenders by assets.
"Japan's financial system isn't working properly and the crisis isn't over," said Kouhei Ohtsuka, a member of parliament with the Democratic Party of Japan who once worked in the central bank's inspection division.
The government is betting the new rules — which will be expanded to all accounts from April 1, 2003 — will improve things by making customers more cautious and forcing lenders to prove their soundness.
The nation's financial regulator, established in 1998, has been carrying out bank inspections since.
Within the past year, there were 41 credit unions that failed — 14 percent of the total — along with two regional banks and 13 credit associations, the Financial Services Agency said. Deposits at second-tier regional banks have fallen every month, compared with the same month a year earlier, for more than two years, according to the Bank of Japan.
