Press Conference by the Minister for Financial Services

(Results of the Special Inspections on Major Banks)

(Excerpt)

12 April, 2002

Q.

Major banks' losses due to the disposal of non-performing loans (NPLs) totalled 7.8 trillion yen for the previous term, including the 1.9-trillion-yen loss revealed by the special inspections. Do you understand that the critical stage is now over in regard to the so-called NPL problem?

A.

It is difficult to discuss the disposal of NPLs in terms of whether the peak is over or not. Our yardsticks for the disposal of NPLs are the NPL ratio when discussing the balance of NPLs, and the ratio of credit costs when discussing the losses arising from the disposal of NPLs, which we have been clearly distinguishing and explaining to you.

Regarding the 7.8 trillion yen as credit cost, the credit cost was about 10 trillion yen in FY1998, approximately 4 trillion yen in FY1999 and FY2000, and then it is 7.8 trillion yen this year. It should be noted that this includes the 1.9 trillion yen revealed by our latest special inspections and the thorough self-assessment performed in a similar manner by banks that were not directly targeted by the special inspections. Also, it might reflect the worsening business environment in various ways. Assuming that the economic environment is as currently forecasted, in my opinion, this 7.8 trillion yen may be interpreted as the second peak, and the credit costs should gradually get back to a normal level in the future based on this assumption.

Although the balance of NPLs might not decrease much for a while during the intensive adjustment period, our view is that it is possible to achieve it to a normal level by FY2004 provided that efforts are made in that direction.

Q.

Prime Minister Junichiro Koizumi's instruction was ''don't worry about the banks' strength through proceeding with the special inspections.'' The capital adequacy ratio of the banks ultimately turned out to be way above the soundness criteria, and in consideration of these results, some critics argue that the disposal of NPLs may ultimately have fallen short of what the banks were capable of. From your point of view, have the special inspections been conducted strictly without worrying about their strength?

A.

In my opinion, it is hard to conclusively say that the capital adequacy ratio has far exceeded the criteria. Seeing the capital adequacy ratio to drop by 1% is a considerable development. With reference to the capital adequacy ratio projected upon semi-annual financial statement in September, the disposal of NPLs is deemed to have been quite radical to the extent of seeing the ratio to drop by 1% or so. Our understanding is that it meets Mr. Koizumi's requests.

Q.

The banks' capital adequacy ratio was way above the soundness criteria according to the results of the special inspections. Considering these results, there are still strong arguments for injecting public funds for the disposal of NPLs, including those as a preventive measure. What is your opinion on the injection of public funds?

A.

Although I do not claim that the banks' capital adequacy ratio is comfortably high, it is fair to say that in light of the soundness of the banks, the capital adequacy ratio at this level is sufficient to indicate their soundness.

Assuming this, we do not think the situation requires reinforcement by means of the injection of public funds. However, if systemic risk should arise as referred to in Article 102 of the Deposit Insurance Law, we intend to take ''various measures'' without hesitation, including the injection of public funds as a matter of course, which goes without saying.

Q.

The issue has been attracting a great deal of attention overseas. Is it possible to explain to the international community that the solution to Japan's NPL problem is now really on track?

A.

As stated earlier, the trends in the credit costs were such that they exceeded 10 trillion yen in 1997 and 1998, dropped to about 4 trillion yen subsequently, but then increased to 7.8 trillion yen this year, which is regrettably another peak. Regarding this as the second peak, the credit costs are expected to decrease again to reach a normal level.

However, according to simulations, the ratio of NPLs is not expected to suddenly decrease but hover around the same level for 1 or 2 years and start decreasing after that towards FY2004. This assumes the reform advocated by the Cabinet Office and the economic outlook based on our perspective. Taking this into account, I have projection of what I have just said, and I intend to clearly show the prospects for the solution of the NPL problem to the international community by providing a clear explanation on the matter.