1. |
Adequacy of the bank's process on self-assessment
and write-off/allowance
yAssessmentz |
|
All banks were found to have properly established
the process for self-assessment and write-off/allowance, and are expected to continue
their effort toward further strengthening and solidification. |
yFlow of operation z |
|
In general, the evaluation process - from
self-assessment to the write-off/allowance - is as follows: 1) branches carry out the
primary self-assessment at the end of December; 2) the credit risk management department
of the head office carries out the secondary self-assessment; and 3) the credit audit
department audits the secondary self-assessment. Also, 4) the correction process is
carried out in the likewise order from January to March; and 5) further amendments are
added to the result to take account of changes occurred during April to June. For
write-off/allowance, this aforementioned self-assessment is used as its base. Planning
division in accounting department may also be involved in the process. |
@ |
2. |
Adequacy of self-assessment standards
yAssessmentz |
|
Banks' self-assessment standards were generally
consistent with the FSA's "Asset-Quality Assessment" guidelines, although some
minor problems were found in majority of the banks. |
yProblematic Pointsz |
|
(Examples of problems: one or a few banks came
under examples.) |
|
1) |
Existence of rule allowing the credit
classification of affiliated companies to be based on the parent company's classification,
without taking into account of their financial situation. |
2) |
Existence of rule which allows deduction of
expected cash-flow returns from classified credits of gNeed Attention" debtors, without taking
into account their financial situation. |
3) |
Absence of rule to classify differential between
prospective collectable amounts of the collaterals and their estimated market prices, for
"Effectively Bankrupt" or "In Danger of Bankruptcy" debtors, as
category 3. |
@ |
|
3. |
Adequacy of write-off/allowance standards
yAssessmentz |
|
Banks' standards of write-off/allowance were
generally in line with the Japanese Institute of Certified Public Accountants' guidelines
of the gInstructions for examination of internal control on the
financial institutions' self-assessment of assets, and auditing of bad debt
write-off/allowance", although some minor problems were found in majority of the
banks. |
yProblematic Pointsz |
|
(examples of problems: one or a few banks came
under examples.) |
|
1) |
Application of separate rule for credits to
affiliated non-banks which allows their exclusion from general write-off/allowance rule. |
2) |
Absence of self-assessment rule to subject category 3 credits to "Effectively Bankrupt" debtors to a full
write-off. |
3) |
Calculation of historical loss rates by
disregarding majority of data as "abnormal" cases. |
@ |
|
4. |
Accuracy of self-assessment results
yAssessmentz |
|
Errors in classification were found in all banks,
particularly with regard to banks' affiliates and major debtors. |
yProblematic points: a bank or a few banks came under examples. z |
|
1) |
Banks' affiliates were classified as
"Normal", "Needs Attention", or "Other" debtors, without
taking into account their financial situation. |
2) |
Major debtors of the bank or affiliated companies
of other banks were either not classified or classified as category 2,
without talking into account their financial situation. |
3) |
Self-assessment was based on inadequate credit
rating systems. |
4) |
The correction process after the primary
self-assessment was inadequately carried out. |
|
|
5. |
Adequacy of write-off/allowance results
yAssessmentz |
|
Additional amount of write-off/allowance was
required for all banks, mainly due to the inaccuracy of banks' self-assessment, and also
to faults in their write-off/allowance standards. |
(billion yens, %) |
Credits
(1) |
FSA
assessed write-off / allowance amount
(2) |
Self -
assessed write-off / allowance amount
(3) |
Additional
amount of write-off / allowance required
(4)=(2)-(3) |
Insufficiency
ratio
(4)/(1) |
394,207.9 |
8,606.0 |
7,564.7 |
1,041.3 |
0.26 |
Note: |
eThe FSA
assessed write-off/allowance amount (2)' is calculated on the basis of banks'
write-off/allowance standards. |
|
|
|
@
Adequacy of write-off/allowance
(Insufficiency ratio) |
(Number of banks) |
|
less than 0.15% |
7 banks |
|
0.15 `less than 0.35% |
4 banks |
|
0.35% and over |
6 banks |
@ |
6. |
Adequacy of disclosure
yAssessmentz |
|
Non-performing loans were adequately disclosed
following the previous@disclosure standard of non-performing
loan, although some omission or oversight were found .
As from March 1998, banks also disclosed "risk-management loans "according to
the new the disclosure standard set by the Zenginkyo. The "restructured loans",
however, were found to have been disclosed in a unified manner, due to the difference in
definitions of the term employed by banks. |
yProblematic pointsz |
|
(New disclosure standard) |
|
Examples of disclosure standard of
"restructured loans" used by banks: |
|
1) |
The disclosure for spread lending in
"restructured loans" was limited to those with interest spread smaller than 0%,
or 0.125 %. (The disclosure standard for the spread lending set by banks ranged from 0.0%
to 0.375%.) |
2) |
The long and short term prime rate lending was not
disclosed. |
@ |
|