Stock prices for Japan's top banks have been rising lately despite the huge deficits they have suffered in the business year that ended March 31. Increases in loan losses are good news in the sense that they reflect progress in bad-debt write-offs. In the same year, the nation's seven banking groups took a record 7.57 trillion yen in loan-loss charges, posting a combined net loss of 4 trillion yen, according to their full-year earnings reports released Friday.

The big deficit mirrors the banks' resolve to clean up the mess as soon as possible. But it also reflects the tough posture of the Financial Services Agency, the bank regulatory body, which conducted special bank inspections in the second half of fiscal 2001. The official audits prompted lenders to list more loans as nonperforming.

It may be premature to conclude, however, that the worst is over. At the end of March, 13 top banks held a record 27 trillion yen in nonperforming loans, an increase of about 40 percent from a year earlier. Despite the high-profile moves to build banking prowess, notably the birth of four megabank groups, prospects for debt cleanup remain cloudy.