Japan banks' debts up by £10bn

THE mountain of bad debts hanging over Japan's banking system has grown by 1.9 trillion yen (£10.1 billion) in just six months as the fortunes of the country's construction and retail companies continued to slump.

The total - to be revealed on Friday by Japan's Financial Services Agency - will be 8.4 trillion yen (£44.8 billion), according to the Nihon Keizai newspaper.

The surge in non-performing loans confirms the warnings that Japan's major banks will unveil heavy losses for the year to the end of March.

Among the hardest hit have been the big four banks, which were formed out of a series of defensive mergers during the past two years but have yet to produce any economies of scale to rescue the lenders from the collapse of many of their customers.

Tokyo analysts believe the big four - Mitsubishi Tokyo Financial, Sumitomo Mitsui Banking Corporation, Mizuho Holdings and UFJ Holdings - plunged almost 1.5 trillion yen into the red last year.

The most pessimistic forecasts are for total losses of 2.5 trillion yen. In the previous year the big four's combined profits reached 334 billion yen.

The banks have been saved from even more disastrous results by the surge in the Nikkei 225 shares index since the beginning of the year. This has cut trillions of yen off the losses shown on their shareholdings in Japanese companies at end-September, which for the first time must be included in the books at market value rather than cost.