Press Conference by the Minister for Financial Services

(Excerpt)

14 September, 2001

Q.

According to think tanks, the fall in stock prices prior to the interim results due to be released in September may result in more than 5 trillion yen of unrealized losses incurred by major banks alone. This would have a tremendous impact on the management of banks. In order to avoid a global recession, the stabilization of the financial system is regarded an important task. Please elaborate your position on these issues.

A.

Various discussions will be taking place at the Diet today. As we have previously stated, the effects on the capital adequacy ratio would be limited and, as you already know, the capital adequacy ratio of major banks was 11.7% as of the end of March 2001. While this is an estimate, our view is that it is possible to maintain the ratio at around 11% even at the current level of stock prices. These are the facts.

Q.

There are claims that the drop in stock prices to such an extent would inevitably turn the unrealized gains that are used to finance the disposal of banks' non-performing loans (NPLs) into unrealized losses. Would it be possible to execute the disposal of NPLs at the current pace under such circumstances? What is your opinion on this?

A.

As might be known already, the program has been already set that NPLs that are supposed to be disposed of within the next 2-3 years. We have rigidly set a target for NPLs that require disposal. NPLs in the amount of 8.3 trillion yen will be disposed of within 2 years, and 3.4 trillion yen within 3 years. This by no means suggests that banks are not allowed to dispose of NPLs in excess of that amount, but the basic policy decision is to dispose of NPLs at this pace. As we have explained before, the effects of the stock prices drop would be extremely limited, and I believe that there is no need to suddenly change the policy.