Banks should promptly clarify their business outlooks for the financial market to help them pull out of their bad-loan straits, a senior Bank of Japan official said during a recent interview with Kyodo News.

"If banks show their future business models, they will be able to raise funds on their own" without relying on additional injections of public funds, Eizo Kobayashi, who heads the BOJ's bank examination and surveillance department, said when asked whether taxpayers' money should be used again to reinforce banks' capital bases.

Although domestic banks as a whole have dealt with bad loans worth some 70 trillion yen through writeoffs, loan-loss reserves and other methods over the past decade, the situation remains severe. This is because the outstanding balance of nonperforming loans has hardly decreased as a result of economic structural changes, unexpectedly weak economic activity and the continued slide of land prices in Japan, Kobayashi said.

Referring to banks' capital-adequacy ratios, Kobayashi said that while major banks maintain their ratios above the internationally required 8 percent, they "need to win high evaluations from the market" to continue international operations.

Asked how banks should manage risks, Kobayashi said they should toughen their in-house assessment of loans and accurately evaluate risks and returns.

He noted that there is a gap in understanding between banks and the market about the seriousness of bad loans and that banks' announced prospects for dealing with problem loans have turned out to be very different from actual progress.

With regard to the appraisal by the Financial Services Agency of banks' ability to independently evaluate loans to large corporations, whose market-based creditworthiness has deteriorated, Kobayashi said the BOJ will strictly check banks' risk-management systems in close cooperation with the agency.