Japanese banks take a hit
International debt rating agency Fitch puts warnings on 19 Japanese banks
March 14, 2001: 1:28 p.m. ET [17:28 Uhr MEZ]
TOKYO (Reuters) - In the latest challenge to the Japanese economic outlook, <font color="#FF0000">international debt rating agency Fitch said on Wednesday it has placed warnings on individual ratings of 19 Japanese banks, including the world's biggest banking group, Mizuho Holdings Inc.</font>
<font color="#FF0000">The action was taken in response to growing concern over the impact of falling share prices and lingering asset quality problems on the banks' capital adequacy, performance, and prospects, </font>Fitch said in a report.
<font color="#FF0000">The warning came at a time when shares in the nation's ailing banking sector have seen heavy selloffs amid worries that falling Tokyo stock prices would put a damper on the sector's long-running efforts to tackle problem loans.</font>
<font color="#FF0000">Analysts have warned that falling Tokyo stocks will further erode the already fragile financial strength of Japanese banks, hit by a triple whammy of stagnant lending, low interest margins, and high costs to dispose of bad loans created from the burst of Japan's asset bubble in the early 1990s.</font>
They said top commercial banks may be holding up to <font color="#FF0000">4.0 trillion yen in unrealized losses </font>on their vast securities holdings, meaning they can no longer adopt the traditional tactic of relying on windfall gains from share sales to fund costs associated with shedding problem loans.
The latest warning from Fitch was likely to fuel worries about the sector.
<font color="#FF0000">The banking sector sub-index has lost 10.7 percent in value so far this year</font>, under performing the broader benchmark TOPIX's 0.95 percent slippage.
Mounting concerns
Fitch said the review of the bank ratings will focus on the impact on capital and performance from falling share prices and the capacity of each bank to write off problem assets in view of the weakening economy and suggestions of a more aggressive stance by regulators.
Fitch said it was"increasingly concerned" that the final resolution of their severe asset quality problems will be further delayed unless there is some form of government intervention or dramatic improvement in their operating environment.
"Needless to say, the situation is being exacerbated by the falling stock market, which at current levels will continue to impinge on the ability of the banks to offset 'unexpected' loan loss charges," it said in the report.
<font color="#FF0000">Fitch expected loan loss charges in the banking sector would remain high relative to operating profits and equity in the new financial year starting in April.</font>
Many banks also face the daunting prospect of the introduction of mark-to-market accounting for equities held for long-term investment from the business year starting in April.
That will have a direct and material impact on capital ratios when banks reports interim earnings through September.
<font color="#FF0000">The following banks' individual ratings are affected by the review: Asahi Bank, Ashikaga Bank, Bank of Tokyo-Mitsubishi, Bank of Yokohama, Chiba Bank, Chuo Mitsui Trust & Banking, Hokuriku Bank, Mitsubishi Trust & Banking Corp., Mizuho Holdings, Dai-Ichi Kangyo Bank, Fuji Bank, Industrial Bank of Japan, Yasuda Trust & Banking Co. Ltd., Sakura Bank, Sanwa Bank, Sumitomo Bank, Sumitomo Trust & Banking, Tokai Bank, and Toyo Trust & Banking.</font>
The rating agency said its long-term ratings of the Japanese banks are unaffected by this action and are generally stable in view of the strong government support.
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