Japan Unveils Plan to Fix Loan Problems

The government Monday released a plan to address the bad-loan problems of Japanese banks by boosting the moribund property market, but analysts and investors generally found the much-anticipated package disappointing.

Many observers said the measures fall short of expectations initially raised in mid-March, when Prime Minister Ryutaro Hashimoto set the end of the month as a deadline for bureaucrats to come up with the bailout plan.

In early trading today, the Nikkei index--which had shot up 2.2% when Hashimoto announced the deadline March 18--tumbled 361 points, or 2%, to 17,641.76.

More bad news about Japan’s troubled banking industry fueled the decline. Nippon Credit Bank Ltd.’s three affiliates filed for bankruptcy, and Hokkaido Takushoku Bank Ltd., already burdened with its own nonperforming loans, said it will buy rival Hokkaido Bank Ltd.

The key element in the real estate reform package is the creation of new types of securities for sale to investors based on property held as collateral for problem loans, a step similar to measures used to clean up the U.S. savings and loan mess of the 1980s.

This “securitization” of collateral is “a good idea,” said Mamoru Yamaguchi, an analyst at Nikko Research Center, but it “won’t work for the major problems.”

Bad loans held by Japanese banks are officially estimated at $242 billion, but many private analysts say the real figure could be twice that much. The government’s figure for problem loans has remained constant at 30 trillion yen since last year, but as the yen has weakened the dollar value has fallen.

Last week, the National Land Agency announced that average land prices fell for a sixth straight year in 1996, with commercial land down 7.8% from 1995--and 63% from its early-1990s peak.

Another high-profile step in the package announced Monday is a plan for the central and local governments to spend $3 billion in the next 12 months to buy 900 pieces of property currently held as collateral for problem loans to be put to public uses, such as at parks or nursing homes. The package also eases or eliminates some relatively minor taxes.

Some analysts said they were disappointed that many details must still be worked out in the plan for new types of securities based on loan collateral. Analysts also said the government purchase of $3 billion of land is too small an amount to have a significant impact on the overall loan problem.

Critics noted that the plan does not touch the most important land-related taxes, which include a tax on land transactions, despite hopes of some observers that at least one of these major taxes would be slashed or eliminated.

However, even some analysts critical of the plan said it is probably about as good as the government can do.

“There is no public support for a taxpayer-financed bailout,” said David Threadgold, a banking analyst at BZW Securities. “I’m not looking for a big government initiative. It’s not going to arrive.”

Over the last few years, “most of the major banks” have resolved “two-thirds, perhaps three-quarters” of their loan problems, Threadgold said. That still leaves some major banks and more smaller banks that face great difficulties, but these problems can be handled on case by case, without losses to depositors, he said.

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Bloomberg News and Etsuko Kawase of The Times’ Tokyo bureau contributed to this report.