Resona Raises Tax Reform Urgency- Akio Okuyama

Tokyo, May 20: | Updated: May 21 2003, 05:30am hrs
The head of Japans peak accounting body said on Tuesday there was an urgent need for tax reform to prevent capital shortages that forced Resona Bank to seek a government bail-out from affecting more of the countrys banks.

Mr Akio Okuyama, president of the Japanese Institute of Certified Public Accountants, said Japans big four banks were unlikely to suffer the fate of fifth-ranked Resona Bank, which was forced to seek a government bail-out at the weekend.

But he said all banks, including megabanks, would face a tough time maintaining the quality of their capital if the economy stayed weak.

The government said on Saturday it would rescue Resona, the main unit of Resona Holdings Inc, after it succumbed to the strict application of accounting rules that exposed its capital to be well below a minimum required to stay in business.

The megabanks measured their capital very conservatively and are in a different state than Resona, said Mr Okuyama, who is also a member of a key government panel on banking reform.

But if (economic) conditions remain severe, the banks will find themselves in the same, tough situation next March.

Resonas problems centred on its heavy use of deferred tax assets (DTAs) expected tax credits on loan-loss provisions as core capital.

Because the credits materialise only once the bank makes a profit or the borrowers go bust, auditors refused to sign off on Resonas accounts on the view its profit forecasts were too rosy. (Reuters)