Megabank racks up $22bn loss

Protesters outside the headquarters of Sanwa Bank

Japan's troubled banking sector has received a fresh blow as the country's fourth largest bank revealed it is in the red to the tune of $22bn (£15.4bn).

The Finance Ministry has allowed reckless driving by banks and life insurance companies

Translation of protester's banner

UFJ Holdings, one of four megabanks created in April, has run up the debt in bad loans, which it is now under pressure to write off.

The huge number of problem loans is a major cause of Japan's economic slowdown over the past decade.

The country's government has been calling on banks to start clearing up their bad debts.

Protests

UFJ posted a combined group an operating loss of 211.76bn yen (£1.24bn) in the year ended in March, down sharply from a profit of 166.56bn yen (£983m) a year ago.

The bank said it will return to the black this year with an estimated 240bn yen profit (£1.42bn).

Its three member banks came under the joint holding company on 2 April, giving birth to the UFJ (United Financial of Japan) group with about 90 trillion yen (£531bn) in combined assets.

Feelings are running high in Japan over the alleged recklessness of the banks in lending cash to poorly managed companies.

On Wednesday, demonstrators staged a protest outside the headquarters of Sanwa Bank, one of the members of the UFJ consortium, in Tokyo.

The protesters wore black hoods and carrying Buddhist tablets, to honour borrowers whom they say committed suicide while trying to repay bad debt.

They blame the bank for forcing individual borrowers to sell their property to repay debts while the banks waived non-performing loans made to large contractors and mismanaged companies.

The two banners pictured above read "The Finance Ministry has allowed reckless driving by banks and life insurance companies." and "We don't forgive unfair action by banks."

Writing-off loans

Sanwa Bank reported on Friday a group net loss of 147.65bn yen (£840m), compared with a 119.5bn yen (£705m) profit a year ago.

Group operating revenue fell 15% on year-on-year to 1.879 trillion yen (£11.2bn).

It wrote off 675bn yen (£3.92bn) in dud loans but still had problem loans totalling 1.3 trillion yen (£7.56bn), about the same as last year.

Another member of the UFJ group, Tokai Bank, posted a group net loss of 62bn yen (£361m) for 2000, compared with a 42bn yen (£247m) profit a year ago. Group operating revenue fell 43% to 932bn yen (£5.46bn).

It wrote off 352bn yen (£2bn) in bad loans during the latest fiscal year. The bank said it had problem loans totalling 908bn yen (£5.32bn), up from 678bn yen (£4bn) a year ago.

The third member, Toyo Trust, posted group net loss of 1.9bn yen (£11.2m), compared with a 5bn yen profit a year ago. It disposed of 144bn yen (£840m) in bad loans but still had 466bn yen (£2.7bn) left.

Other banks

For this fiscal year through March 2002, the UFJ banks expect to post a combined group net profit of 240bn yen (£1.4bn) on operating revenue of 3.1 trillion yen (£18.2bn).

The group plans to write off another 300bn yen (£1.75bn) in bad loans in this financial year.

Other Japanese banks are also suffering weak earnings - confirming the view that the sector has a long way to go to clean up its bad loan mess.

Daiwa Bank said it fell into the red, while two trust banks - Yasuda Trust & Banking and Chuo Mitsui Trust and Banking Co - reported a steep decline in profits.

All of the banks predicted they would be back to the black this business year.

But analysts are predicting a bumpy road ahead as a fresh round of problem loans is generated by a weak economy.