Japanese Banks Rush to Cut Bad Loans at Cost of Profits

Japan’s big four banking groups posted sharply lower first half net profits, with one plunging into the red, as they hurried to write off bad loans ahead of a government target.

The banks have either already hit the target of halving the bad loan ratio by the end of March 2005 from 2002 levels or are confident about meeting the requirement as they see growth potential in lending to smaller firms and expanding retail businesses like mortgages and pensions.

UFJ Holdings, the smallest of the four, Wednesday reported a net loss of 674.28 billion yen ($6.5 billion) in the six months to September, plunging from a net profit of 179.85 billion yen a year earlier, as huge provisions set aside for bad loans cut deeply into profits.

Non-performing loans at UFJ rose 204.9 billion yen to 4.1 trillion yen during the first half, pushing up the bad loan ratio by 0.9 percentage point to 9.4 percent.

Non-performing loans are judged by banks to be difficult to recover or are un-recoverable and for which financial provisions which cut into bottom line profits have to made.

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