Standard & Poors Corp., has warned that it may reduce its ratings of five Japanese banks because of the length and severity of the problems that nation's banking industry is facing.

Dai-Ichi Kangyo Bank, Sumitomo Bank, Fuji Bank, Mitsubishi Bank, and Sanwa Bank all may reduced by S&P because of what the firm said was prolonged financial stress from Japan's severe economic slump.

S&P said the problems facing banks in Japan include a high level of problem loans with a consequent reduction in profitability and severely limited access to fresh capital.

The firm said continued downward pressure in the real estate and equity markets have impeded a banking recovery. Values in some sectors have fallen by nearly half in recent years.

S&P noted that the Japanese finance ministry has strongly supported the nation's banking sector through fiscal policy, reduced interest rates, and flexible tax treatment of loan losses.

S&P said this official-level support has slowed but not reversed the trend toward declining credit. Still, the support may enable even the weakest banks to remain investment grade - with compression of the single-A rated banks most likely.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.