By Emiko Terazono in Tokyo
Published: March 13 2001 17:53GMT | Last Updated: March 14 2001 03:53GMT
Japan's leading banker on Tuesday tried to shrug off fears of another banking
crisis as the country's shares fell to a new 16-year low, but by Wednesday
midday Tokyo had edged higher on the strength of a Nasdaq rebound.
Yoshifumi Nishikawa, chairman of the Japanese Bankers Association, expressed
concern over the Nikkei benchmark index falling almost 3 per cent to 11,819,
closing below 12,000 for the first time since February 1985. But he dismissed
concern that this would trigger a crisis in the country's banking system ahead
of the March year-end.
"There will be no March crisis in the banking system," said Mr Nishikawa, who
is also president of Sumitomo Bank.
However, analysts warned a further decline could hit the banks' profits as
they are obliged to write off valuation losses of their shareholdings if the
market value of the stocks they own falls below 50 per cent of the book value.
"A further 10 per cent fall in shares could wipe Y1,000bn (US$8bn) off profits
of the leading banks," said Jason Rogers, analyst at Fitch, the international
credit rating agency.
Continued stock market falls will also severely affect the banks' ability to
write off non-performing loans. The country's banks have used paper gains
derived from their huge shareholdings to offset the pressure of writing off
bad loans.
Hakuo Yanagisawa, financial services minister, on Tuesday expressed concerns
over the result of the decline in shares. "There are various negative effects
on the financial sector," he said.
Mr Yanagisawa last week called for banks to clean up their balance sheets by
directly writing off non-performing loans, selling off collateral and cutting
off extra support to weak companies. His proposal shook the country's bankers
as it would mean more bankruptcies and a sharp rise in unemployment.
The so-called "Yanagisawa Initiative" has come as economic sentiment has
deteriorated sharply, and has come under attack from politicians.
A prolonged stock market slump would also have a serious impact on the
country's banks, which will be required to book latent profit and losses on
their cross-shareholding portfolios from the new business year starting in
April.
Under the new mark-to-market accounting rule, banks will have to value their
shareholdings at market prices rather than the current method of using book
value.
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