The Financial Services Agency (FSA), based on the ''Program for Financial Revival'', has been taking a number of measures to promote tighter assessment of major banks' assets. The measures include: another round of special inspections, establishment of a special team to examine debtors' reconstruction plans, and revision of the inspection manual to incorporate the application of discounted cash flow (DCF) type method for provisioning purposes. After the completion of the special inspections, the result of the inspections and the provisional outlook of the amount of write-offs and provisions for loan losses calculated with the DCF type method are summarized below. |
1. |
Outline of the Special Inspections
The FSA conducted another round of special inspections for the banks' fiscal year ending March 2003. |
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(1) |
Banks Inspected: 11 Major Banks (Sumitomo Mitsui Banking Corporation (SMBC), Sumitomo Trust and Banking, Chuo Mitsui Trust and Banking, Mizuho Bank, Mizuho Corporate Bank, Mizuho Trust and Banking, Bank of Tokyo-Mitsubishi, Mitsubishi Trust and Banking Corporation, UFJ Bank, UFJ Trust Bank, Resona Bank) |
(2) |
Period of Inspections: Commenced on January 27, 2003, and completed with notification of inspection results to individual banks on April 24, 2003. |
(3) |
Contents of Inspections: Classification of large borrowers whose stock prices, external ratings and other indicators had been experiencing significant changes, were inspected at the main banks of these borrowers (i.e. banks playing a leading role in extending credits to the borrowers) to obtain appropriate borrower classification. Coordinated works were carried out with the banks' external auditors. |
(4) |
Total number/amount of borrowers/credits: 167 borrowers, 14.4 trillion yen |
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(Note) |
The number of borrowers inspected in the special inspections for the fiscal year ending March 2002 was originally 149 (with total credit amounting to 12.9 trillion yen). It increased to 151 due to corporate separation. |
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(a) |
Number/Amount of borrowers/credits inspected for the first time:
25 borrowers, 1.3 trillion yen
Borrowers were selected by the same criteria which were used in the special inspections for the fiscal year ending March 2002. |
(b) |
Number/ Amount of borrowers/credits inspected in previous inspections:
142 borrowers, 13.1 trillion yen
The number of borrowers inspected either in the special inspections for the fiscal year ending March 2002, or in the
real time check for the interim period ending September 2002 (and not in the previous round of the special inspections) totaled 188. From among the 188, 46 borrowers with little need of further follow-up inspections, including those that filed bankruptcy or disappeared as a result of mergers, were excluded from the target. |
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(5) |
Intensive Examination of Reconstruction Plans
Out of the above-mentioned 167 borrowers, the special team for examining reconstruction plans examined 127 borrowers with reconstruction plans in cooperation with the special inspection teams. The results of the examination have been reflected in the classification of borrowers. |
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(Note) |
The special team consists of 11 members including an expert for corporate reconstruction specially hired from the private sector and a professor specializing in the field of Commercial Law, in addition to FSA inspectors, a number of which are certified lawyers, accountants, and real estate appraisers. The team was established in December 2002. |
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2. |
Summary of the Inspection Results |
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(Note) |
Figures for the four industries (construction, real estate, wholesale and retail, and other financial services) are indicated in brackets. |
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3. |
Estimate of the Amount of Write-Offs and Provisions Concerning Inspected Borrowers
The Japan Institute of Certified Public Accountants (JICPA) released a guideline on the application of DCF type method in calculating the amount of provisions for loan losses, while the FSA revised its inspection manual in accordance with the JICPA's new guideline. The new guideline and the revised manual together formed the framework for the application of the DCF type method. The FSA requested major banks to apply the DCF type method in provisioning toward large borrowers classified as ''need special attention'' and ''in danger of bankruptcy'' starting from the fiscal year ending March 2003.
Major banks are currently in the process of calculating the amount of write-offs and provisions for loan losses for the fiscal year ending March 2003. The FSA has obtained from the major banks their provisional estimates of the amount of write-offs and provisions with regard to the borrowers reviewed in the second round of special inspections. The result of the FSA's aggregation and calculations based on such estimates are summarized below: |
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(1) |
Losses from the disposal of NPLs concerning borrowers inspected |
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(2) |
Provisions for loan losses to borrowers categorized ''need special attention'' |
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(Note) |
The rate of provisions is calculated as the rate of provisions to the uncovered portion of credits. |
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