Rising bad loans in Japan are forcing Japanese banks into a wait-and- see attitude, making any expansion in the United States unlikely over the next few years, according to bank analysts.

"Japanese banks are in something of a state of shock,"' remarked Andre A. Cappon, president of the New York-based consulting firm CBM Group Inc. "You won't see them sell anything, but they're not quite sure what to do in this country."

"It's going to take up a significant amount of financial and management resources to resolve problems and that in and of itself will limit the banks' expansion," said Jeff Fritzinger, who tracks Japanese banks for Standard & Poor's.

Last week, the Japanese finance ministry announced that problem loans at Japanese banks had reached as high as $470 billion, far worse than originally believed.

Sakura Bank, which owns Manufacturers Bank in Los Angeles, has the highest number of nonperforming loans, followed by Dai-Ichi Kangyo Bank, with U.S. operations are based in New York, and Fuji Bank, which has a trust bank and wholesale operations also in New York.

Analysts said it will now take Japanese banks far longer than expected to work out these loans.

To speed up the workouts, they added, more Japanese banks may merge, government aid may be forthcoming, and banks that merge may be far more brutal about rationalizing their operations than they have been in the past.

In the 1980s and early 1990s, Japanese banks built up a large presence in the United States. They held $392.6 billion of assets, or 43% of foreign banks' total U.S. assets, as of midyear 1994, according to statistics compiled by the American Banker.

However, since mainly real estate-related problem loans began mounting at home several years ago, Japanese banks have kept a low profile, shying away from additional acquisitions and the aggressive grab for market share they pursued earlier. In addition, Japanese banks have been hampered by low profitability, stemming from their inability to form close relationships with U.S. corporations and the narrow range of products they offer.

As a result, a number of Japanese banks with limited U.S. operations, such as Nippon Credit Bank, have over the past few years shut down their U.S. offices.

More recently, Bank of Tokyo and Mitsubishi Bank Ltd. announced they will consolidate their U.S. operations, eliminating duplicate branches and operations as part of their planned merger.

As a result of that transaction, Bank of Tokyo's $16 billion-asset Union Bank will merge with Mitsubishi's $7.7 billion-asset Bank of California subsidiary. The two banks also each own agencies in Texas, and have New York-based trust companies.

Paradoxically, however, some analysts say that even if Japanese banks don't make any major moves, they may attempt to boost earnings in the United States and other countries outside Japan to compensate for a shortfall in revenue at home.

"Japanese banks can't find any lending business in Japan," remarked David Marshall, a director with the London-based rating agency IBCA Ltd.

"Logically, one might think that they would be less active participants, but my understanding is that Japanese banks have become more active in international lending markets, and that's one of the reasons loan margins on international markets are coming under pressure."

Analysts noted that different Japanese banks are moving at different speeds to deal with their bad loans. These observers declined to speculate on which banks might merge next.

But they added that consolidation will make the stronger banks, like Sanwa Bank Ltd. and Sumitomo Bank Ltd., stronger, while smaller, weaker regional banks will disappear as soon as the government agrees on some sort of a bailout package.

"Consolidation might take a more brutal form than it has in past, when nothing really changed, management remained in place, and nobody, including shareholders, really suffered," Mr. Marshall predicted.

This means that reductions in branches, people, and operating units will become inevitable, he said.

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