The company that will take over the state-backed Japan Post's postal savings operations when the system is privatized is expected to enter the loan business, according to postal privatization minister Heizo Takenaka.

But in separate meetings Thursday with the ruling bloc, the government failed to specify how privatizing Japan Post will improve its operations.

The envisaged postal bank's possible new services include loans to small businesses and housing loans, Takenaka told a House of Representatives Budget Committee session earlier Thursday.

It will be allowed to extend loans after it starts collecting money as a private business under the Banking Law, Takenaka told the session.

But the minister stopped short of saying when the service might start, leaving the matter to the discretion of the bank's management.

In a meeting later Thursday, the government told the ruling Liberal Democratic Party that the performance of Japan Post would deteriorate if it remained a public corporation, according to lawmakers who attended the meeting.

The government explained that all of Japan Post's three services are on the decline, because mail volume and the outstanding balance of "kampo" life insurance peaked in 2001 and the balance of savings peaked in 1999.

Privatization will give management the flexibility needed to expand the scope of postal services to increase profits, while Japan Post is under tight legal controls in providing services as a public corporation, the lawmakers quoted government officials as saying.

Some LDP lawmakers remained unhappy about the explanation and reiterated their request for longer-term estimates comparing the expected effects of privatization with those of leaving Japan Post as it is, the lawmakers said. New Komeito, the junior coalition member, heard the account separately after the LDP.