The government's emergency economic package released April 6 featured steps to promote bad-loan disposal in the banking industry. The specific targets involved a two-year deadline for major banks to remove some 12.7 trillion yen in outstanding loans to borrowers either bankrupt or on the brink of collapse, and a three-year deadline to take care of new nonperforming loans.
The bad-loan mess was the biggest factor behind the decade-long slump of the Japanese economy. While it is of course welcome that the government has drafted plans to solve the problem once and for all, there still remains much to be done.
First, the plan to dispose of those bad loans within two years is not unreasonable, if it means writing off 6 trillion yen to 7 trillion yen a year. In fact, the major Japanese banks combined have been disposing some 10 trillion yen in sour loans each year.
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