After years of timid attempts to clear mountains of nonperforming loans, Japanese banks appear to be finally coming to grips with the bad-debt crisis. In the half-year business term to September, most of the 14 top lenders took larger-than-expected charges against their dud loans, even dipping into their capital reserves. The result was a massive flow of red ink. The 14 banks combined are expected to write off more than 6 trillion yen in bad debts for the full year ending March 2002.

It is premature to conclude, however, that the worst is over. For one thing, it remains unclear whether banks are truly determined to clean up the mess and start doing business in more responsible ways. They have yet to convince a skeptical market that they have kicked their habit of procrastination -- putting off the drastic writeoffs and management overhauls that are needed for banking reform.

In announcing their interim results, major banks struck an optimistic note for the future, saying that they will regain health through profit recovery in fiscal 2002 and beyond. That comment needs to be taken with a grain of salt because their past debt forecasts have often fallen wide of the mark. They still suffer a crisis of confidence as their cleanup efforts continue to fall far short of expectations.