The Financial Services Agency has said it will not order banks to improve their operations even if they fall into the red -- provided they clear their net business profit targets and adhere to other criteria.
The clearance of return on equity targets is also included in this criteria, FSA Commissioner Shoji Mori said at a regular news conference Monday.
Under 1998 legislation aimed at restoring the health of Japan's financial system, banks could receive public funds by submitting management improvement plans to the government. The FSA orders banks that received this funding to improve operations if earnings fall more than 30 percent short of targets.
As the strict application of this requirement would hamper banks' efforts to dispose of bad loans, however, the FSA has set criteria allowing banks to close their books in the red in order to encourage them to accelerate writeoffs.
In addition to profit and return-on-equity targets, the FSA will not issue the order if banks are viewed to be promoting writeoffs and if their earnings reports are deemed by financial markets as showing efforts to improve their financial condition, Mori said.
With regard to last week's announcement by Sanwa Bank, Tokai Bank and Toyo Trust & Banking Co. that they will post losses in fiscal 2000, Mori said the FSA "appreciates" the banks' decision as a result of a strict assessment of their assets.
Mori's statement was taken to mean the agency will not issue the order to the three banks, which will merge to form UFJ Holdings Inc. in April.