Japan's big four banks bare debts

JAPANESE banks lined up to deliver grim tidings on their economy-crippling bad debt problems, while unveiling a massive restructuring package for one of the country's largest property groups.

UFJ, one of Japan's big four banks, revealed it had taken the lead in putting up 342.3bn yen (£1.88bn) to rescue Daikyo, the country's biggest builder of condominiums, raising further fears that the bankers will not bite the bullet by turning away problem borrowers.

The package is the second-largest bail-out of a Japanese company after the 520bn yen rescue of troubled supermarkets operator Daiei earlier this year.

UFJ, one of the four megabanks created by a series of mergers last year, also revealed an annual loss of 1.23 trillion yen to end-March, a record loss for a major Japanese bank, and up from 211.8bn yen last year.

Its problem-loans book now stands at a staggering 6.48 trillion yen. President Hideo Ogasawa is standing down. The size to which Japan's bad-debt problem has ballooned was shown by the country's second-largest lender, Sumitomo Mitsui Banking, which reported that its portfolio of festering loans had almost tripled to 5.9 trillion yen in the past year. Sumitomo sank to a year loss of 463.9bn yen.

The world's biggest lender, Mizuho Holdings, fell 976.04bn yen into the red, as bad-debt provisions more than wiped out last year's profits of 211.26bn yen.

Mizuho's losses followed debt writeoffs of 2.19 trillion yen, which left it with another 5.02 trillion yen of problem loans on its books.

Mitsubishi Tokyo Financial Group recorded losses of 152.32bn yen, after writing off 684bn yen of bad debts over the year, and it now faces another 570bn yen hit in the current year, although it expects to make profits of 55bn yen. The big four banks' combined bad debts total 21.7 trillion yen, net losses were 2.8 trillion yen and loan loss charges were 6.2 trillion yen.

This was the first year in which banks had to meet new standards of transparency on their bad-loan books, which has been seen as a key factor in forcing them to clean up their lending act.

Japanese shares eased slightly ahead of the banks' results, which emerged after the market in Tokyo closed today.

Forecasts by bank chiefs that their bad-loan problems have peaked, and that their businesses will return to the black this year, are likely to be taken with a pinch of salt by investors, who have seen 80% wiped from the value of their Japanese bank investments since the peak of the market.

Analysts have criticised Japan's banks for renegotiating rather than foreclosing on debts of errant borrowers, arguing that myriad rescue packages have extended the bad-debt cycle.