Asia Times: Japan's bigger banks fare far better



	September 17, 1999	atimes.com

Japan

Japan's bigger banks fare far better

TOKYO - Bigger fares better, at least if you're a Japanese regional bank. ''The rating outlook for the larger Japanese regional banks is mostly steady, with selective upgrades and downgrades,'' Moody's Investors Service stated in its annual review of the sector.

The rating agency acknowledged that personal and corporate bankruptcies remain at high levels because of the prolonged downcycle and that recession-related credit expenses may rise in the short-term. ''Stronger regional banks, however, should be able to absorb these losses, sustaining both loan volume and margins without compromising credit quality,'' the report concluded.

Currently, all of the deposit ratings of regional banks are investment grade because Moody's expects full depositor protection from the government in the event of financial distress. Moody's presently rates 29 banks in this sector, and the credit strength average is Baa1/A3, while the financial strength average (which excludes external supports) is D/D+.

The rating agency is less hopeful about the ''weak sisters'' of the sector. Especially vulnerable are those banks that are still carrying non-performing loans from the bubble era. ''The regulators are trying to impose greater market discipline on the banking sector,'' explained the author of the report, Moody's Assistant Vice President, Shunsaku Sato, ''and the plight of the weaker banks is being brought out into the open by the regulators' application of more stringent quantitative measures.''

Government concerns are in line with those of regional banks. ''The regulators are concerned about the potentially adverse impact on the local economy, should one of the larger regional banks be forced to close down under the increasingly stringent regulatory guidelines,'' stated one analyst. Most of the banks are trying to concentrate their resources on their respective local markets. Regional banks are closing their foreign branches and those branches located outside of their core markets, which Mr Sato considers a credit-positive factor.

Moody's emphasized that this study is the annual industry report, and is not to be confused with the recent special comment on this subject, entitled, ''Regulatory Re-Engineering of Japan's Regional Banking System: Resolving, Recapitalizing, Restructuring, and Liquidating.''

(Asia Pulse)

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