TOKYO, Sept 21: Japan’s top financial regulator said on Saturday that the country’s major banks will dispose of bad loans worth about $80 billion in the year to March 2003.

Financial Services Minister Hakuo Yanagisawa also defended plans by the Bank of Japan to buy shareholdings from major lenders to protect them from sharp stock price swings.

He added that the government would inject additional taxpayers money into banks only for the purpose of saving the Japanese financial system from a crisis.

In fiscal 2002, nonperforming loans worth about 10 trillion yen are expected to be taken off the balance sheets at the level of major banks without putting any burden on their finances, Yanagisawa said.

It was the first time that Yanagisawa had given a clear estimate on the disposal of bad loans that have been plaguing financial institutions since the burst of the overheated “bubble economy” investment boom of the late 1980s.

Yanagisawa was speaking via television to a symposium held in Virginia, the United States, with US and Japanese financial officials, economists and private bankers taking part.

Japanese banks are under pressure to write off bad loans, which stood at $366 billion in March, as part of a reform drive by Prime Minister Junichiro Koizumi to boost the ailing economy.

Koizumi has pledged to reduce bad loans to safe levels within three years from when he took office in April 2001.

But more loans have since turned sour amid a prolonged economic slowdown despite increased efforts by banks to tidy their balance sheets.

On Wednesday, Bank of Japan governor Masaru Hayami unveiled the stock buying scheme, which was criticised by analysts as market manipulation and government coercion that offered no long-term solutions.

But Yanagisawa said the scheme would help stabilise the financial sector.

Risks from stock price fluctuations have greater impact on the stability of the Japanese financial system than bad loan problems, he said.

The scheme was announced at a time when the government is seen as desperate to boost share prices to shore up corporate earnings before the financial half year ends on September 30.

Yanagisawa recalled that Prime Minister Koizumi had pledged to US President George W. Bush in a meeting in New York last week that he would make further efforts to accelerate the disposal of bad loans.

But he rejected growing expectations about a further injection of taxpayers money to ailing financial institutions as part of pump-priming or anti-deflation measures.

It is wrong to discuss an injection of public funds as an extention of macroeconomic measures, Yanagisawa said. It would no doubt throw cold water on management efforts to enhance the health and profitability of financial institutions.

But he added: We should not let any crisis occur in the financial system and we should not hesitate to inject funds if it is deemed necessary to prevent such a crisis. —AFP