Japan's Banks, Brokers Face Bumpy Road in '92
TOKYO - Japanese bankers and brokers, reeling from the scandals of 1991, face big headaches next year from deteriorating real estate loans and a moribund stock market.
"This year was the harshest, not only for brokers and banks but also for people who borrowed to invest in land and stocks and for firms that did equity-related financing," said a senior official at the Industrial Bank of Japan.
"Everyone who danced in Japan's |bubble' economy of soaring stock and property prices is suffering now," he said.
Two-Year Lag Foreseen
For banks, which were blamed for helping inflate those prices with aggressive lending, it may take two years or more to get out from under leftover bad loans, the official said.
More than 10 senior bank executives, including the chairmen of Fuji Bank and the International Bank of Japan resigned this year over their institutions' involvement in scandals.
Apart from the damage to their image, there is the estimated $1.6 billion in nonperforming loans, about 7% of loans outstanding. Analysts say the bad loans could weigh on bank profits in the fiscal year that will start in March.
Impact of Deregulation
After two years of tight credit, lower interest rates and the consequent decline in funding costs helped banks post better profits in the six-month period that ended Sept. 30. But souring loans, a slowing economy, and continuing financial deregulation could hurt future earnings, analysts said.
"It is the first time for Japanese banks to face three challenges at the same time - deregulation, a slowing economy, and a still-tight credit situation," said Mariko Kodama, an analyst at rating agency Mikuni & Co.
Many bank officials agree.
"Big commercial banks are preparing for a survival game to retain and improve their rankings after deregulation," said Mitsuaki Yahagi, a deputy general manager at Mitsui Taiyo Kobe Bank.
Tough Sledding for Securities
Japan is moving to end controls on the rates of interest banks may pay to depositors by the end of 1994.
A sweeping reform lowering barriers between banks and brokers, expected to start in 1993, will result in a larger gap in the services offered by big and second-tier banks.
The securities business faces even tougher times ahead, industry sources said.
Scandals Surfaced in June
The securities industry was rocked by revelations in June that brokerages had improperly compensated favored clients for investment losses and that affiliates of Nomura Securities Co. and Nikko Securities Co. had ties with gangsters. Senior executives resigned.
With no recovery in the Tokyo stock market in sight, a stormy reorganization of the industry is likely to start in late 1992, an industry source said.
"Japan's 270 brokerage houses can manage to survive if the trading volume of the Tokyo Stock Exchange is over 500 million shares a day," an industry source said. But with daily volume drifting at 200 million shares of fewer, small to midsize brokers must merge to cope with a shrinking market, he said.