Asian banks must learn from Japan

Asian banks must learn from Japan

HONG KONG (AFP): Banking authorities in Asian countries hit by currency turmoil must learn from the mistakes made by Japan and clean up their balance sheets, analysts said yesterday.

The lesson was brought home Monday when seven years after Japan's bubble economy burst, the authorities had to let Hokkaido Takushoku Bank Ltd. collapse under its bad debt.

Hokkaido was the country's 10th largest bank and its biggest banking failure.

The news was greeted with euphoria by the Tokyo stock exchange and healthy rises on bourses around the world. The view was that the Japanese authorities had at last decided to confront the mounting finance problems, under pressure from major trading partners worried about their impact on global growth.

"It is the final recognition that there is nowhere to hide," said Philip Moffit, vice president of Tokai Asia, an investment subsidiary for a major Japanese bank.

"Japan has had practically no growth for the past seven years because the policy makers denied there was any problem in Japan," said Bruce Bernstein, chief economist for U.S. merchant bank Merrill Lynch.

"It is such a big lesson for everybody else."

"All these problems were serious enough when they started but Japan made its own problems more serious by not addressing them," declared Bernstein.

"Each individual government in this region has to sit back and try to understand what happened."

Michael Taylor, chief economist for W.I. Carr, said other countries were less likely to succumb to Japanese-style inertia.

"The reason they could afford to wait such a long time is clearly because Japan enjoys a current account surplus. When you face a current account deficit, you need somebody to finance you."

Thailand, Indonesia and the Philippines have all needed International Monetary Fund (IMF) help and been told to sort out their banking sectors. South Korea could follow soon.

The lesson from Japan, according to Phil Jones, the Tokyo representative for Thomson BankWatch, a credit ratings agency, is that banks must receive clear instructions on evaluating bad debts and to stop giving loans to doubtful customers.

Jones said he believed that Hokkaido Takushoku "was not insolvent until three years ago."

"But like all Japanese banks, it doesn't have to make full disclosure of its problem loans.

"As a proof of their solvency, they kept lending more and more money to a number of weak clients and the problem became worse every year."

Japan will only apply a programs called "prompt corrective action" from April 1 1998, imposing strict bank rules on doubtful debt, he said.

Major institutions like Bank of Tokyo-Mitsubishi and Sumitomo Bank have anticipated the reforms by posting massive losses after making provisions.

"If it had been done five or six years ago, the floor would have been cleaned up by now," Jones said.

He added that now it would take until the end of the 1998 fiscal year (which finishes in March 1999) for bad debt ratios to be restored to acceptable levels.

According to Kenneth Courtis, chief economist and strategist for Deutsche Bank in Tokyo, Japanese banks have put around $250 billion from revenue between 1989 and 1996 into provisions.