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Japan's FSA to examine big banks over loans

Japan's financial regulator said it would launch an inspection of the country's banks next month to ensure they are extending loans to viable companies struggling to get funds amid the credit crisis.

Tumbling global demand for cars, technology and other exports has sent Japan into its deepest recession since World War Two. Banks have reined in credit, triggering a spike in bankruptcies among the country's smaller firms.

The government, keen to keep credit flowing to the small and medium-sized companies that collectively employ most Japanese, has been leaning on banks to ease credit and has offered to help by recapitalizing them with public funds.

The Financial Services Agency plans to inspect Japan's nine major banks, including Mitsubishi UFJ Financial Group Inc, Mizuho Financial Group Inc and Sumitomo Mitsui Financial Group Inc between April and June.

The inspections will also cover regional banks and credit associations that have been named frequently in borrower complaints, said an official at the FSA's inspection bureau.

“The economy has deteriorated so quickly,” the official said. “We are conducting this inspection to see if the money is available where it's needed.”

The FSA regularly inspects banks but this is the first inspection over a specified time frame and targeting whether banks are properly extending loans, the official said.

Japanese corporate bankruptcies rose 10.4% in February from a year earlier, marking the ninth straight monthly rise. The number of bankruptcies of listed firms hit a postwar record last year, led by failures of property and construction firms.

The government said earlier this month it would put a total of about $1.2 billion into Sapporo Hokuyo Holdings Inc and two other regional banks and signaled it was ready to do the same with other lenders to keep credit flowing.

But analysts have warned that the government risks triggering a rise in bad loans if it pushes lending too hard.

“The economy has worsened so that the FSA needs to show it is making an effort but this could be a negative move for the lenders,” straight months since September 2007 when the subprime mortgage crisis started to appear in the United States, the Nikkei business daily said citing data from the Bank of Japan. (Reuters)