Tokyo, July 24: The fears of more failures lurking in Japan's restructuring economy after the collapse of Sogo Co Ltd have led to a rise in the premium charged to banks doing business in the overseas inter-bank market, traders said on Monday. The three-month dollar Tokyo Interbank Offered Rate (Tibor) has edged up by six or seven basis points since Sogo filed for bankruptcy on July 12.Traders said the premium reflects questions over the exposure of Japan's major banks to non-manufacturers, especially the construction sector where many Japanese companies are still wrestling with debts built up in the bubble era in a decade.
Three month Tibor is now 6.73 per cent - 6.75 per cent for major Japanese banks, compared with major European and US banks at 6.67 per cent - 6.68 per cent. Before Sogo's descent, Tibor for Japan, European and US banks stood at around the same levels. "Sogo's problem is just the tip of the iceberg. Its collapse could pave the way for an early death of many of ailing construction companies drowning in a sea of debt," said a European bank trader.
The premium for Japanese banks vanished late last year as markets recovered confidence in Japan's bank restructuring efforts, although it re-emerged again in February after the high-profile failures of housing developer L Kakuei Corp and supermarket operator Nagasakiya Co LtdThose bankruptcies renewed caution on the loan asset quality of Japanese banks, pushing the Tibor premium up five basis points.
Traders expect the "Japan premium" could even get wider in expectation of more failures in the construction sector, regardless of how much provisioning the banks have done.
Japanese banks are estimated to have set aside provisions for an average 85 per cent of potential losses on their exposure to ailing construction sector, which employs some 10 per cent of Japan's workforce. Moody's Investors Service said on Friday that Sogo's court filing has little impact for major bank credit ratings because of substantial provisions against Sogo exposure.
But Moody's cautioned that the financial condition of Japanese banks' remains susceptible to negative developments, as their capital cushion is extremely thin.
"The rating agency does not expect a near-term rehabilitation of financial condition of Japanese banks and the Sogo event reinforces the agency's view," it said. Standard & Poors Corp, another international rating agency, said last week that the biggest reason for them to keep Japanese bank ratings from being upgraded was a slow improvement in their financial health due to the heavy burden of problem loans. Shares of Japanese banks have suffered amid general market worries toward the sector.
-- (Reuters)
Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.