Japan banks underfunded by U.S. standard


UFJ stock was sinking again on Tuesday, after showing mounting bad debts

TOKYO, Japan -- Japan's biggest banks show they are undercapitalized by world banking standards, analysis of their results shows.

The seven top bank groups in Japan have equity-to-capital ratios that stand at 6.5 percent, research by the Nihon Keizai Shimbun indicates.

The Bank for International Settlements requires banks to maintain capital levels of 8 percent or higher, if they want to do business overseas.

Only No. 2 Sumitomo Trust & Banking Co. and No. 3 Mitsubishi Tokyo Financial Group meet that requirement, the Nikkei found in a report on Tuesday.

Applying U.S. standards

The 6.5 percent level is 4 percentage points less than the banks reported. The Nikkei says it applied U.S. accounting standards, which are stricter than those applied by Japan's banks.

The mountain of bad debts at Japan's banks is generally viewed as the biggest hindrance to economic recovery.

Most of Japan's biggest banks on Friday reported huge losses for the financial year just ended (full story).

Though many forecast profits for this year, through March 2003, their critics worry they may again back off tackling problem debts.

Applying U.S. accounting rules wipes out more than 10 trillion yen ($80.2 billion) from the seven bank groups total shareholder's equity, the Nikkei found.

Their equity would drop to 21 trillion yen, from the 33 trillion yen they reported. Their risky loan portfolios stay the same by both U.S. and Japanese standards, at 324 trillion yen ($2.60 trillion).

UFJ stock suffering

Mitsui Trust said through a representative that it had conducted its accounting "appropriately," following domestic standards in Japan.

Japanese bank stocks rose in anticipation of their earnings but sagged on Monday.

On Tuesday at lunchtime in Tokyo, UFJ Holdings was suffering, down 1.96 percent at 350,000 yen, after showing mounting bad debts (full story).

But Japan's No. 1 bank Mizuho Holdings was up 0.33 percent at 303,000 yen, despite the perception by many analysts that it is the most troubled of the "Big Four."

Analysts generally credit Mitsubishi Tokyo Financial Group as having made the most progress writing off bad loans. It was up 0.95 percent at 960,000 yen at noon.