Press Conference by the Commissioner

(Excerpt)

11 November, 2002

Q.

Today, there was a meeting held between the top management of banks and the Financial Services Agency (FSA). Could you please describe what the theme was, and what kind of dialogue took place?

A.

Basically, it was an explanation by the authorities on the Program for Financial Revival released recently. We requested them to make positive efforts.

Q.

Were there any specific demands from the banks?

A.

Basically, there is a common understanding that the non-performing loan (NPL) problem is to be terminated in FY2004. Also, we talked about exchanging opinions thoroughly when examining various matters that need to be examined in the future. The joint revival of the financial and industrial sectors is valued highly by the financial sector, and they are eager to make positive efforts.

Q.

The gap between FSA's inspections and banks' self-assessments has been disclosed to the public. There are criticisms against it, on the grounds that banks' estimations are way too lenient. What is your opinion on this? Also, the plan is to issue a business improvement administrative order if a bank fails to narrow the gap. What kind of criteria will be considered for this?

A.

Let me answer the second question first. For that matter, we intend to examine it thoroughly in the days ahead. It is extremely important that the self-assessments are conducted as rigorously as possible and become more accurate to reflect the actual conditions. As we decided to disclose the gap to the public from such a standpoint, the approach needs to be properly defined in consideration of its purpose as such.

The results of the first round were publicly disclosed last week. As the Financial Inspection Manual was publicized when the business year changed to 1999 and applied from the period ending March 2000 to the period ending September 2001, it was the first inspection since the application of the Financial Inspection Manual. Also, special inspections were conducted in the latter half of 2001, which affected the inspection results as well, so it is quite difficult to evaluate them in general terms. In any case, we intend to publicly disclose the results of the second round once it is done. My understanding of the present situation is that the gap is smaller than in the first round, which is not surprising.

Q.

In response to the announcement of the Program for Financial Revival, there are signs that the banks are reducing assets, but they seem to have manifested in the form of the reduction of loans. This may raise concerns about credit crunch against small- and medium-sized enterprises (SMEs). How does the Government intend to respond to this?

A.

For financial institutions, it is extremely important to enhance profitability. Based on this view, it is unlikely that they will blindly reduce assets. For example, their basic approach will be to achieve a balance between reducing, securitizing or liquidating overseas assets, and facilitating loans to boost profitability. However, as the concerns that you just mentioned do exist, the program for Financial Revival consists of various measures in view of facilitating financing to SMEs. It also consists of various measures in view of preventing credit crunch and credit withdrawal, giving due consideration in that regard.

Q.

There have been some news reports about the review of the Basel Capital Accord, and bank stocks are falling in price today. What are the facts and how is the Government going to respond to it?

A.

The review of the Basel Capital Accord is still under examination at the moment, and work is currently being done on publicly releasing the third draft in the second quarter of next year, and the final draft within next year. The New Basel Capital Accord aims to calculate more accurately the risks to which banks are exposed. Roughly speaking, taking claims as an example, the examination is directed at reducing the capital adequacy burden in regard to claims of blue-chip companies with high credit capabilities, or those of SMEs and individuals, for which risk diversification is easy. On the other hand, for assets exposed to relatively high risks, it is directed at increasing the capital adequacy required. As the aim is to make the calculations more accurate and not about requiring greater capital adequacy in all cases, the burden will depend on the composition of the claims of each bank. One cannot generally determine whether the capital adequacy burden will be heavier or lighter without applying it on an individual basis. As this is to be implemented from the end of 2006, it is necessary to bear in mind how the situation will be at that time. In terms of the NPL problem, everyone is currently making various efforts to terminate the problem in FY2004. If everyone makes an effort and squares up, whether NPLs will have increased or decreased by the end of 2006 will actually depend on the substance of each financial institution. If the normalization of the NPL problem is terminated in FY2004, there is no point in talking about the fiscal term starting from the end of 2006 at this stage. All that matters is to endeavor towards the termination of the problem in FY2004. Let me say this one more time, whether NPLs will increase or decrease will depend on the bank's asset portfolio at that time, so the truth is that it cannot be generalized.