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Japan Banks To Write Off Bad Loans

April 4, 2001

TOKYO (AP) _ Japan’s ruling coalition agreed Wednesday to require banks to dispose of their riskiest loans in two years, but the parties did not unveil a broad economic stimulus package that had been expected.

Shizuka Kamei, the policy chief of Japan’s ruling Liberal Democratic Party, said that the LDP and its coalition partners were unable reach a decision on when to submit needed legislation to Parliament. A final decision on the emergency economic package was expected Friday, he said.

The deadline on writing off bad loans _ a key part of the package _ is meant to force Japanese banks to clean up a financial mess that has crippled the world’s second-largest economy since stock and property prices collapsed in the early 1990s.

Banks would have two years to dispose of loans that are least likely to be repaid and three years to clear newly soured loans, Economy Minister Taro Aso said Wednesday.

The Nihon Keizai newspaper estimated the size of the most problematic loans to be $101.08 billion.

The government package is also expected to include plans to set up a private fund that will buy banks’ stockholdings.

In Japan it has long been customary for lenders and their corporate clients to hold each other’s shares as a symbol of their good relations. But with the stock market’s recent slump to a 16-year low, banks’ large stock portfolios have become a heavy drag on their finances.

Analysts criticized the delay to the economic plan, saying it showed the government’s lack of political will to carry out important economic reform.

``We were going to get a banking plan today, but we didn’t,″ said Ron Bevaqua, senior economist at Commerz Securities Japan.

Bevaqua also raised concerns that the government would not strictly enforce the proposed bad-loan-disposal plan. ``Unless they deliberately force the banks to write off this debt, then it’s almost meaningless,″ he said.

Japanese lenders have been hesitant to liquidate collateral that has shrunk dramatically in value, preferring to keep ailing borrowers alive with cheap credit.

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