The Bank of Japan said Thursday that Japanese commercial banks have written off about 60 percent of the bad loans that were on their books at the end of March this year. The central bank said in a nationwide survey that they have removed a combined 42 trillion yen worth of nonperforming loans from their books since fiscal 1998.
The report showed the nation's banking industry has not yet recovered from the collapse of the asset-inflated bubble economy of the early 1990s, pointing out that the value of the lenders' remaining bad-loan holdings still surpasses their combined net business profits or profits from core banking operations.
The banks cleared away 6.1 trillion yen worth of bad loans in fiscal 1999, half of the annual record of 13.5 trillion yen posted in fiscal 1998.
The BOJ said that how the institutions' bad-loan disposal proceeds will depend on any changes in the quality of borrowers' assets and in the price of land held by the banks as collateral. It said their profitability improved over the past year because of low fundraising costs stemming from the BOJ's so-called zero-interest-rate policy and lower personnel expenses supported by intensified restructuring.
In a controversial move, the BOJ abandoned its ultraeasy monetary policy on Aug. 11. The policy, in effect since February 1999, had been guiding the unsecured overnight call money rate to around zero to help stave off a deflationary spiral.