The latest financial reports from Japan's major commercial banks tell more of the same story: The huge overhang of nonperforming loans continues to block a return to health. To be sure, banks made a profit in their main lines of business in the first six months of fiscal 2002, as they did in previous periods. However, that was mainly the result of rock-bottom interest rates. The business profit is paltry compared to the mountain of bad loans.

Now the banks are getting more serious about addressing their bad-debt woes. With the government pushing for faster debt cleanup, it is likely that the rules for loan and capital assessment will be tightened. Banks will likely receive less tax credit for their capital than they do now. They will have to put aside more loan-loss reserves. Certainly, all this will increase the pressure for bank reform.

To clear these new hurdles, the banks must restructure their operations and find new business opportunities. They would do well to emulate manufacturers who have been doing essentially the same thing over the years -- getting leaner while tapping new demand. Of course, banks are different from manufacturers, but they cannot restore the confidence of investors and depositors unless they, too, make serious efforts to survive.