Press Conference by the Commissioner

(Excerpt)

August 4 , 2003

Q.

At the end of last week, the Financial Services Agency (FSA) took Business Improvement Administrative Orders to 15 banks. The Business Improvement Administrative Orders are deemed to have been issued in consideration of the fact that capital surplus has not been set aside steadily, in preparation for the simultaneous conversion deadline. Some banks, however, claim that it would be difficult to implement further measures under the current harsh economic climate. Under these circumstances, what kind of Business Improvement Plan does the FSA expect from the banks?

A.

On August 1, we issued Business Improvement Administrative Orders against banks that are way far behind in terms of their Business Revitalization Plans. They primarily request the banks to submit a Business Improvement Plan, including measures to improve earnings, by August 29, 2003.

As the situation certainly varies among each financial institution, it is difficult to give an overall comment. However, in any case, we have requested them to seriously examine ways to further improve their profitability, taking due account of the situation and other factors.

Q.

Ultimately, it is a scheme in which the repayment of public funds is essential. Overoptimistic earnings forecasts may not be appropriate, but some banks may be forced to make downward adjustments to their earnings estimate, which may undermine tax effects and even raise concerns about a fall in the capital adequacy ratio. What is your view on this matter?

A.

Under the Business Improvement Administrative Orders in this case, the banks are requested to make further improvements in profitability. Improvement of profitability is a top priority issue of utmost importance, as is the issue of disposal of non-performing loans (NPLs). In this context, we believe it is natural for us to have requested banks that are way far behind in their Business Revitalization Plans to improve their businesses. As it is purely a matter of improving profitability, the FSA basically requests for the banks to improve it by themselves. Regarding the issue of deferred tax assets, the FSA requested strict assessment and audits of deferred tax assets based on the Program for Financial Revival announced in October 2002. Accordingly, strict audits and other measures are being implemented, and assessment is being performed in an appropriate manner. Such strict audits are expected to continue in the future.

Q.

In the beginning of April, the strict application of the 30% rule was shown in writing. There are claims that it is illogical to apply the rule retroactively to the financial results for the term ending in March 2002. What is your understanding on this point?

A.

The approach was indicated in the Program for Financial Revival announced in last October. As approach was originally shown in October and publicly announced on April 3, I don't think we have any problem of retroactive effects.