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Last Updated: Friday, 18 June, 2004, 12:01 GMT 13:01 UK
Watchdog raps Japan's UFJ bank
UFJ logo
UFJ has pledged to tackle its bad loan problem
Japan's financial markets regulator has reprimanded the country's fourth biggest bank, UFJ, for misleading a probe into its financial position.

The Financial Services Agency said the bank had held back information showing that some borrowers were in a worse financial state than it had reported.

It also censured the bank for missing an earnings target by more than 30%, the maximum allowed under FSA rules.

The FSA ordered UFJ to improve its performance, but did not impose fines.

However, the reprimand is expected to damage investors' already shaky confidence in UFJ, which has turned in hefty losses for the last three years running.

Nationalisation threat

"There are so many question marks hanging over whether UFJ will be able really to improve, and I'm not willing to buy the stock," said Hiroshi Nishida at Mitsubishi Trust Asset Management.

The reprimand over the missed earnings target, UFJ's second, puts the bank under added pressure to meet its profit goals in future.

Under FSA rules, drawn up when UFJ and other banks received an injection of public cash in 1998/99, the bank could be nationalised if it falls more than 30% short of its target a third time.

The FSA said that by hiding documents from officials inspecting its books last autumn, UFJ had misrepresented the extent of its bad loan problem.

"It became difficult to correctly judge the classification of borrowers and the needed levels of write-offs and provisions," it said.

Like its peers, the bank approved large loans during the 1980s boom, many of them secured against property and shares which have since plunged in value.

The bank's borrowers are believed to include several large, heavily-indebted companies whose ability to service their loans is questionable.

UFJ made a 402 billion yen ($3.7bn) loss in its most recent financial year, defying a trend towards sharply improved results in the wider banking sector.

The bank has since unveiled a restructuring programme and pledged to reduce its bad loans.

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