Japan ready to bail out banks

The bad-loan charges are piling up at Japan's banks

Japan's central bank stands ready to bail out the country's ailing banks - but only in the event of a crisis.

The Bank of Japan's governor, Masaru Hayami, drew comparisons to the situation of 3-4 years ago, when a meltdown in banking stocks - triggered by malpractice and bad debts - destroyed Yamaichi Securities.

Bad loans/core bad loans at end Sept 2001 (bn yen)

Mizuho:
5,580/3,060

Yasuda Trust:
547.05/329.12

Sumitomo Mitsui:
3,330/2,220

Mizuho:
5,580/3,060

Mitsubishi Tokyo:
4,640/2,580

UFJ Group:
2,890/1,860

Asahi:
1,290/810.4

Daiwa:
898.79/439.09

Sumitomo Trust:
604.03/455.71

Chuo Mitsui:
925.8/413.5

NB: Core bad loans are those where the debtor is bankrupt or at risk of bankruptcy

That would not happen again, Mr Hayami said.

"In the event of an unforeseen situation, we are fully prepared to help," he said.

"We now have a safety net in place to help firms in emergency situations, compared to 1997, 1998."

No blank cheque

But Mr Hayami made sure that no-one would take his words as giving banks a let-out clause from the bad debt mountain under which they are currently struggling.

At present Japan's government offers unlimited protection for bank deposits should a bank go under.

But in April a two-stage replacement for the scheme is scheduled to come into effect, removing the carte blanche.

Some politicians - largely those in the ruling party who are on the banking lobby's payroll - are calling for the scheme to be delayed.

Mr Hayami is having none of it.

"If we keep prolonging our plans, this may eventually undermine our creditworthiness," he said. "I think it should be carried out as planned."

Many observers believe that recovery for the banking sector, and for the sickly giant that is the rest of Japan Plc, can only come at the cost of companies going bust.

Under water

At least as far as the stock market is concerned, though, the banks remain deeply enmired.

Banking stocks are at lows barely reached in two decades, in the wake of an earnings reporting season that saw the depths of the bad debt problem exposed.

The trouble is that while the gravity of the situation is becoming clearer, there is a lack of trust that banks will actually bite the bullet and come up with solutions.

The scepticism is reinforced by an increasing belief that central government's words on the urgency of reform may not translate into actions.