Japan government considers another bank bailout

By Ann Saphir
Bloomberg News service

WASHINGTON — Japan may be moving closer to its third bank bailout in four years, with the government considering helping lenders write off the $426 billion in bad loans that are stifling growth, Finance Minister Masajuro Shiokawa said.

Japan "should use public funds for banks if necessary," Shiokawa said on his arrival in Washington yesterday to meet with his counterparts from the Group of Seven industrial nations. That "is a question we have to work out."

The finance minister's comments came a week after the Bank of Japan said it would buy some of the lenders' $200 billion in stockholdings, signaling its view that banks need government help to survive.

Japan will also consider ordering the state-backed Resolution and Collection Corp. to pay higher prices for bad loans to entice banks to speed write-offs. The corporation paid an average of just 12.6 percent of face value for loans in the past three months, government figures show.

"We'll consider that as part of a comprehensive approach," he said. "The issue is speeding up the disposal of bad loans."

The minister said Japanese growth bottomed out and will go into an uptrend, estimating it will grow by 1 percent in the fiscal year that begins April 1, after "flat" growth in the current fiscal year.

UFJ Holdings Inc. and other Japanese banks may have to subtract losses on investments from their capital when they close half-year books on Monday, cutting into their capital.

That may make them reluctant to write off the bad debts that are paralyzing Japan's banking system, starving the world's second- largest economy of the fresh credit it needs to expand.

Bank lending hasn't increased since October 1996.

Financial Services Minister Hakuo Yanagisawa said this week that banks don't need any more public money.

Japan spent 9.3 trillion yen to bail out the largest lenders in 1998-99. Bad and at-risk loans may total as much as 150 trillion yen, Standard and Poor's said yesterday. That's three times the government estimate and more than a quarter of Japan's gross domestic product, which amounts to 530 trillion yen.

Bank of Japan Governor Masaru Hayami, who is also in Washington to attend the Group of Seven meetings, has urged the government to use taxpayer money again this year to replenish banks' capital.

Hayami's promise last week to buy some of their shareholdings was directed at helping them shore up capital as they write off bad debt.

Japanese banks need to reduce their capital ties to companies by divesting their shareholdings, Shio-kawa said today.

"To reduce the links between banks and corporations is a big issue for structural reform," he said. "Making corporations more financially independent will help speed up the disposal of bad loans."