The Financial Services Agency said Thursday that 18 Japanese small credit associations failed to achieve the 4 percent threshold for the capital-adequacy ratio in their earnings report for fiscal 1999.

The top financial regulator said it discovered the shortfall during intensive inspections of credit associations it began in July. The results of the inspections were reported to the ruling Liberal Democratic Party's financial affairs commission, it said.

Many credit associations are seeing their capital-adequacy ratio deteriorating as they write off bad debts as more of their borrowers experience financial problems and while real estate prices continue to decline, according to finance industry sources.

Agency officials said there is a possibility that more credit associations will fail to keep their capital adequacy ratio above 4 percent as they may be required to clear away more bad debts during FSA inspections.

Credit associations are under pressure to strengthen their financial health because state-backed guarantees for full repayment of bank deposits at troubled institutions will end in April 2002.

After that, the government will guarantee only up to 10 million yen per bank deposit.

This could encourage depositors to go to what are perceived as healthier banks, triggering a shift of funds away from credit associations.

From April 1998 through the end of May this year, the financial authorities ordered 42 credit associations to take "prompt corrective action" to boost their capital bases.