By FUMIKO FUJISAKI
TOKYO -- Major Japanese banks are making plans to meet international capital requirements even if the Japanese stock market resumes its fall.
"We must achieve the capital adequacy requirements," said Teisuke Kitayama, deputy general planning manager at Sakura Bank Ltd. "We are forced to map out a plan to do so."
The Japanese banks are being watched closely by bankers and regulators in other countries, who fear that the stock market's volatility may prevent the Japanese from meeting the stronger capital standards that take effect early in 1993.
New Avenues Explored
Bankers in Japan said they were studying ways to improve capital ratios through offerings of perpetual debt and perpetual preferred stock, which would be new to Japan, as well as by continuing to trim assets, including domestic loans.
Japan differs from many other countries in that financial regulators allow banks to count unrealized profits on stockholdings as part of capital. But the twoyear slump in the Tokyo stock market has rendered this a disadvantage.
To prepare for some worstcase scenarios, bank officials are studying simulations simulations of the Nikkei stock average that go as low as 10,000.
The index hit a five-year low of 16,598.15 on April 9 and has since recovered to about 18,000.
Failing Below Capital Ratio
Ministry of Finance officials said Sakura Bank and perhaps another of Japan's 11 major banks stood below the mandated 8% ratio of capital to riskweighted assets as of the end of March, when the Nikkei was 19,345.95.
Sakura officials said the bank must redouble efforts to make the goal by the March 1993 deadline.
A senior Ministry of Finance official has told parliament that the ministry will help banks adopt measures to help meet the capital standards.
Masaaki Tsuchida, director general of the ministry's banking bureau, did not specify, however, what measures the ministry was considering.
Disparity on Unrealized Profits
The international capital rules recognize two kinds of capital: core capital, like ordinary shares and reserves; and supplementary capital, such as subordinated debt and unrealized profits on securities.
Japanese banks count 45% of unrealized stock profits as part of their capital.
The perpetual issues now being considered will cost more than the fixed-term subordinated debt that the banks have issued in large volumes over the past two years.
Major Japanese banks are already near the limit on fixedterm subordinated debt issues, which may not exceed 50% of core capital.
Another part of their strategy is to trim assets further both at home and abroad by cutting new lending, reducing loans outstanding, and restraining crossborder money-market dealings.
"Japanese financial authorities have told us that we still hold more assets than we need," a bank official said.
At home, banks will cut mainly loans to high-risk firms with which they have only loose business relations.
Affect on Competition
As Japanese banks trim loans abroad, United States and European banks will be able to increase their market shares and the shift will not have a major impact on financing abroad, another bank official said.
Japanese banks are the main players in cross-border money markets, since U.S. and other Western banks have shifted their focus to off-balance-sheet items such as swaps and futures.
But "even if Japanese banks cut these operations, it will not hurt clients," another bank official said.
The Japanese banks' stock prices were hit by the troubles of Olympia & York Developments Ltd., the Canadian real estate developer.
But industry analysts said the Japanese banks' exposure to Olympia paled in comparison to their domestic woes.