After Prime Minister Junichiro Koizumi, Hakuo Yanagisawa probably has Japan's toughest job. His bureaucratic title -- Financial Services Minister -- means he's point man for the country's bad-loan and bank restructuring. It promises to be a painful process, and many think Japan, even under the forthright Koizumi, may shy away.
Yanagisawa was in the U.S. this week to reassure the International Monetary Fund, the U.S. Treasury Dept., and Federal Reserve Chairman Alan Greenspan that Japan's bank revamp is on track. He talked with BusinessWeek editors on Sept. 4. Here are edited excerpts from their conversation (Note: This is an extended, online-only version of the interview that appears in the Sept. 17 issue of BusinessWeek):
On outside estimates of Japan's nonperforming loans [NPLs], and why they are so much higher than government figures:
From our side, we announced numbers based on aggregated disclosed data for major bank groups. We also announced numbers for all the banks, credit corporations, and deposit-taking institutions in Japan. That may be regarded as a micro approach. There are people who come up with figures from the outside. But those people find it totally impossible to identify the individual sizes of loans and aggregate them. So they tend to take a macro approach. So you see, there's a totally different way these figures are derived.
I have tried to trace how these figures are arrived at. During the bubble period, [outside analysts] assumed 80% of the loans extended to the construction industry and real-estate industry should have turned into nonperforming loans, along with 20% of loans extended to the manufacturing industry. My question is: Where did they find these figures? When somebody is using these kinds of calculation methods, it's very hard to comment on them.
On the challenge of getting bad loans off the banks' books:
Those loans that we would qualify as doubtful or worse should be totally removed from the balance sheet. That is what Mr. Koizumi is saying [should be done] in the next two or three years. Currently, the ratio of NPLs to total loans stands at 5.72%. In the case of the United States' FDIC member banks, it stands at 1.24%. S&P says a normal and sustainable ratio is 4% or below. We agree that should be the case.
On the impact of loan write-offs, which would force some borrowers into bankruptcy:
The council for economic and fiscal policies conducted a calculation of what would be the number of jobless from the write-offs of NPLs. The result was 130,000 to 190,000. Therefore, you can see that we do not think the pain from the write-offs will be so large. Already, the businesses that have been the target of this NPL program have restructured their organizations and reduced their employees.
On the potential for bank failures as the bad-loan problems mount and their impact on depositors:
I don't deny that failures of banks may occur. We do not intend to bail out insolvent banks, but up until Mar. 31 of next year, all depositors' money will be protected in our system. After that, there'll be no more full protection. [So] depositors will have to sustain losses, and market mechanisms should take care of the situation. But even before we come to that point in time, we do not think we should push banks to such corners
administratively. Therefore, it is inconceivable that we would close banks.
If you're asking if the decline of the Nikkei will make banks sustain losses as a result of their holdings, let me explain. In the case of the Nikkei average, the stocks included in these calculations are mostly new companies that have emerged. The shares held by Japanese banks are composed of old Japanese companies. Of course, if a catastrophe occurs, the story may be different, but as long as the Nikkei is 10,000 yen or above, then the impact on capital ratio of banks is going to be -0.5%. When the previous closing of accounts took place, the Nikkei average was 13,000 yen. So we do not think that the current situation would lead to failure of banks.
On the Resolution & Collection Corp., whose job is to buy up bad loans at a discount and resell them:
We will provide necessary funding as purchases [of bad loans] take place. It is not the case that we have a predecided funding for the RCC. The stance of the new president of the RCC is to be more proactive. So the amount of funding may be rather large, though I can't tell you the exact amount. We are seeing the development of a market from which NPLs may be bought. The president of the RCC's position is he's going to take part very actively in this market. Up until now, the RCC was only taking part in this market twice a year. But from now on, they will be constantly in the market seeking increased opportunities.
On a recent IMF report questioning Japan's official NPL figures:
The report introduces two different positions. One is the analysis of the IMF analyst based on the macro approach. The other is the Financial Services Agency view. I would like to make the IMF understand that [our numbers are trustworthy because] we are aggregating individual financial institutions' disclosed data. We have to make them understand our position.
Edited by Julia Lichtblau
Get BusinessWeek directly on your desktop with our RSS feeds.
Add BusinessWeek news to your Web site with our headline feed.
Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video.
To subscribe online to BusinessWeek magazine, please click here.
Copyright 2001 , by The McGraw-Hill Companies Inc. All rights reserved.
Printer-Friendly Version
