Press Conference by the Commissioner

(Excerpt)

1 October, 2001

Q.

Last week, the Mitsubishi Tokyo Financial Group announced the compulsory write-down of stock held by its subsidiaries and the downward revision of its consolidated earnings projections. What is the likely impact on other major banks, considering the level of stock prices at the end of September?

A.

As you know, the level of stock prices at the end of September was extremely low: the Nikkei Average was ¥ 9,774. As it is the first interim closing of accounts since the introduction of mark-to-market accounting, I believe the impact will be felt in various ways.

The subsidiaries subject to such a compulsory write-down would see their profits being affected, and even those not subject to it would still see their financial resources required for dividend payments being affected by low stock prices. Consequently, some of them might decide not to pay interim dividends.

After the introduction of mark-to-market accounting, considering that it is impossible to predict stock prices, interim dividends could not be paid until it becomes clear that there are definitely enough financial resources generated in the term to pay out the payment of dividends under the Commercial Code, as you are aware of. At this rate, there will naturally be a stronger trend to reduce the frequency of dividend payments to once a year, to pay dividends at the fiscal year-end, and I had personally anticipated this to happen for some time.

Our biggest concern regarding the Nikkei Average being at ¥ 9,774 is not about its impact on financial resources required to pay dividends, but its impact on the soundness of banks. In other words, what will happen to their capital adequacy, our estimates indicate that major banks in general would be able to retain a capital adequacy ratio of roughly 11%, taking the impact of stock prices into account, assuming ceteris paribus. However, the disposal of non-performing loans (NPLs) might require more resources than expected. As such effects are anticipated in the interim closing of accounts in the future, we will work on various simulations to measure these effects as well. In any case, I would say that the banks will be able to maintain their capital adequacy ratio at above 10%.