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Finance Ministry Seeks to Calm Fears About Banks

August 4, 1995

TOKYO (AP) _ Seeking to allay worries about the health of the financial system, a senior Finance Ministry official said Thursday that Japan would take ``drastic steps″ over the next five years to breathe life back into its debt-laden banks.

While acknowledging that Japanese banks had serious problems, Yoshimasa Nishimura, head of the ministry’s banking bureau, also criticized what he called ``exaggerated reporting″ in the foreign press.

``It’s just not true that the Japanese financial system is facing collapse and that large amounts of public funds will be needed″ for a bailout, Nishimura told a news conference at the Foreign Correspondents’ Club.

His appearance was part of a campaign that includes the creation of a new post within the ministry to deal with international public relations and a talk last week by Nishimura’s deputy to a group of about 60 foreign bankers and analysts.

The message was the same: Japanese banks are fully capable of dealing with their pile of bad debt left over from the speculative boom of the late 1980s.

Nishimura said the banks were holding at least $450 billion in non-performing loans, of which up to $165 billion may be unrecoverable. But that still remains a small part of the total outstanding loans of $7.7 trillion, he said.

Nishimura said the broad direction of the ministry’s plan would be clear by October, with enabling laws enacted within a year. He said most of the bad loans could be absorbed by the banks themselves.

In a vague outline released in early June, the government guaranteed all deposits in Japan for the next five years. Nishimura did not elaborate on what ``drastic steps″ would be taken, but said the ministry hoped to have the issue settled within five years.

One worry for the ministry has been overseas credit rating services lowering their evaluations of debt issued by Japanese banks because of concerns about the bad debt problem and Japan’s economic slump.

The financial system received a jolt earlier this week when depositors pulled out $890 million in two days from Cosmo Credit Corp., a troubled Tokyo credit association, following weekend reports of its difficulties. Banking authorities responded with emergency loans to Cosmo, apparently calming nerves and preventing the run from spreading.

Banking analysts in Tokyo generally agree with the ministry’s assessment that Japan’s largest banks _ among the largest in the world _ are stable. But they are concerned that a combination of factors still could hurt.

``I think that the problem is basically managable,″ said Walter Altherr, financial analyst at Merrill Lynch. ``But if everything goes bad at once _ lower stock and land prices combined with a high yen and continued low economic growth _ it would put an enormous amount of pressure on the system.″

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