The government will ask regional banks to set numerical bad-loan reduction targets and to strengthen their financial bases, according to a draft of fresh government guidelines aimed at bolstering the nation's financial system.
The new plan is designed to force regional banks to reduce their bad loans aggressively during a two-year period beginning April 1, 2005.
This is when the government will scrap its full refund guarantee for ordinary deposits, a move that may prompt jittery depositors to shift their savings from weaker banks to healthier ones.
A draft of the plan, which has been tentatively dubbed the financial structure strengthening program and will take effect from April 2005, was made available to Kyodo News on Thursday.
To date, no numerical targets have been set for regional banks out of concern over the potential impact on slumping regional economies.
If regional banks significantly fail to achieve their targets, the Financial Services Agency will call for detailed reports on why they failed to do so and how they will improve operations so as to meet the targets in future, according to the draft.
The agency is poised to strengthen the nation's financial system ahead of the abolition of the state's blanket deposit guarantee by cutting bad loans held by regional banks, whose rate of bad-loan disposal has not kept pace with that of major banks.
An outline of the envisaged program will be incorporated into the government's basic policy to promote structural reforms, which will be compiled in June. A final proposal will be made by the yearend, FSA officials said.