JEI's Spin on the News

Banks Change Opinion Of Loan Sales

Monday, July 19, 1999

While claiming to have "written off" significant amounts of their nonperforming loans, Japanese banks have, in fact, kept bad loans on their books while setting aside reserves equal only to a portion of the bad-loan total. This reluctance to actually sell or cancel nonperforming loans reflects several factors:

It now appears, however, that Japanese bankers attitudes toward bad loans are being swept up in the processes of economic restructuring. According to the newly formed Resolution and Collection Corp. — a government agency modeled after the U.S. Resolution Trust Corp. — 39 banks have filed paperwork to sell to it bad loans with a face value of ¥223 billion ($1.9 billion at ¥120=$1.00). The loans are particularly difficult cases where illegal occupants or organized crime are involved. The banks want to see whether the RCC's authority to cut through red tape and court procedures to clear out tenants and resolve complex collateral claims will prove worth the trouble.

RCC officials hope to resolve all applications by the end of September, which marks the first half of FY 1999. 14 major commercial banks have offered ¥150 billion ($1.3 billion) worth of bad loans, 20 top and second-tier regional banks have put up another ¥53 billion ($441.7 million) worth of loans, and five other financial institutions (including credit cooperatives) have asked RCC to settle the remaining ¥20 billion ($166.7 million).

EI's Spin on the News" are the opinions of one of more members of JEI's staff and do not necessarily represent the views of the organization.

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