Japan launches inspection of banks' risky loans

Agence France-Presse, Tokyo

The government's financial watchdog said Monday it had started an unprecedented inspection of risky loans held by Japanese banks to discover the true extent of their bad debt, reports said.

"We notified banks subject (to inspection) today" of the dates on which regulators would examine their lending to risky borrowers, Jiji Press quoted Financial Services Agency Commissioner Shoji Mori as saying.

Mori did not disclose how many or which banks were subject to such an unprecedented inspection, Jiji and Kyodo News agencies said.

The special inspections, advanced from the original schedule of early next year, are designed to check whether company debts are mistakenly categorised as problem loans rather than being outright unpayable.

Some of the companies are suspected of actually being nearly bankrupt.

Japanese banks are required to group loans in four separate categories including non-performing loans made to bankrupt or near bankrupt companies, and risky or grey-area loans.

The ambiguity of loan classification was highlighted by the failure last month of supermarket chain Mycal Corp., which filed for bankruptcy with an estimated 1.7 trillion yen (US$14 billion) in group debts.

Banks had classified their loans to Mycal as only being risky, despite the chain's dire financial situation.

The bankruptcy was cited by several Japanese lenders as a significant factor in a slew of recent profit warnings.