Japanese Bank NPLs Decline

Many major Japanese banks delivered good news for investors Monday, reporting stronger earnings for the fiscal year ended March 31 and solid progress in cleaning up their balance sheets. The earnings reports also showed that banks' efforts to reduce their bad loans and lower their dependence on expected tax refunds paid off in healthier balance sheets and sounder capital bases. For most of the major banks, however, last fiscal year was a year of steady progress in cleaning up balance sheets and working toward a government-set goal of cutting a once giant bad-loan problem in half. All major banks said they are on track to reduce their bad loans to 4% of their total lending by March 2005 from around 8% in 2002. That was a key target imposed on the big lenders in October 2002, a month after Heizo Takenaka took over as Japan's top banking minister and promised to tackle the banking sector problems head on.



The amount of bad loans held by the country's seven major banking groups fell 33% to Y14.0 trillion from Y20.8 trillion a year ago. All major banks, including UFJ and Resona, expect profits this fiscal year as they project their bad loan write-off costs will fall further to a total around Y1.4 trillion. Monday's results also showed that banks improved the quality of their capital foundations by reducing their dependence on deferred-tax assets, or expected tax refunds. Deferred-tax assets, or DTAs, are credits which banks can count as capital to fill the gap between accounting and taxation rules when they dispose of bad loans. Such assets are allowed on the assumption that the bank will generate taxable income in the future.



TT's Take Despite continued unwinding of their stock holdings, the major banks reported unrealized profits on stock holdings of Y3.18 trillion, while their valuation losses on bond holdings were Y400 billion. Interesting however is the fact that only Mizuho and UFJ reported increases in real gross profits, which is indicative of their underlying profitability.


Nikkei

Japan Think Tanks See Economy Growing 3.2% In FY04

TOKYO (Nikkei)--Japan's economy will expand 3.2% in real terms this fiscal year, matching the growth rate recorded in fiscal 2003, according to the average of forecasts released by 19 private-sector think tanks.
Capital investments and exports will continue to climb, while brighter signs will emerge for consumer spending, the institutions say.Nine think tanks project that the economy will expand faster than it did last fiscal year, and all 19 predict positive growth for the nominal figure, with their projections averaging 1.3%. But the nominal figure is expected to be far below the real-term number, and it will take a while for Japan to come out of deflation, according to the think tanks.


The projected increase in consumer spending, which accounts for slightly more than 50% of Japan's gross domestic product, is pegged at 2.1%. Capital outlays are expected to rise 8.8%, down from last fiscal year's 12.4% growth, and exports will grow 9.9%, almost unchanged from the 10.9% gain in fiscal


Nikkei