Eleven top Japanese banks sticky assets soar by 60%

Aug 28 | Updated: Aug 29 2008, 06:00am hrs
The list of Japanese real estate companies filing for bankruptcy will grow this year as banks cut lending, said Takeo Higuchi, chairman of Daiwa House Industry Co, Japan's second-biggest home builder by market value. Developers and construction companies dominated the ranks of failures in July, accounting for a third of 1,131 bankruptcies in the month, the largest number since April 2005.

Bad loan losses at Japan's 11 larger banks, including Mitsubishi UFJ Financial Group Inc, surged 62% to 234.1 billion yen in the three months ended June 30 from the year earlier period, Toshimitsu Motegi, Japan's financial services minister, said at press briefing on August 15.

"This is a downward spiral," said Yoji Otani, a real estate analyst at Credit Suisse Group. "Banks reduce lending, the market condition becomes bad; then banks become completely hesitant to lend money, prompting real estate companies to sell assets to pay back debt. The situation will get worse."

"It's hard to see any light at the end of the tunnel," said Higuchi, who last September predicted Japan's property market was set to slow. "Banks will take an even tougher stance on providing loans to property firms after the bankruptcies and we will probably see more failures this year."

The Topix Real Estate Index tripled in the four years through 2006 before stalling last year when revisions to building codes delayed approvals and banks tightened lending to developers. Some foreign funds that invested in the market since 1997 also pulled back after the collapse of the subprime market in the US, said Junko Miyakawa, a credit analyst at Shinsei Securities Co.