Japan resumes NPLs reduction drive

The Resolution and Collection Corporation (RCC), entrusted by the Japanese government to help reduce Japanese banks’ major non-performing loan (NPL) problems, has concluded its first securitisation deal this year. An RCC spokesperson said the transaction, worth ¥9.6 billion, was likely to be just the first of many such deals this year.

The RCC was granted authorisation to offer trust services by Japan’s regulator, the Financial Services Agency, as part of an initiative to upgrade the RCC’s functions. “The RCC can further explore and develop different structures when securitising bad debt, as well as create a standard scheme that can be used by many financial institutions,” said the RCC spokesperson. The RCC received trust business approval from the Japanese government on August 31, 2001.

The current deal removed more than ¥100 billion in NPLs from the balance sheets of banks like Asahi and Mitsubishi Trust & Banking. These were owed by about 150 corporates.

The NPLs were put in trust through a special purpose company (SPC) established by Goldman Sachs and repackaged as four classes of senior beneficiary certificates that were issued and placed privately. Goldman marketed the senior beneficiary certificates, with RCC and Mitsubishi Trust & Banking as trustees.

Credit ratings agency, Standard & Poor’s rated the certificates, due 2007, as ‘AAA’, ‘AA’, ‘A’ and ‘BBB’. The agency said the quality of mortgage assets in the property portfolio securing the certificates, and the credit support provided by the level of subordination set for each class of certificates, were the key factors behind the ratings.

The Japanese government is committed to resolving the outstanding balance of NPLs held by Japanese banks, which reached ¥30.6 trillion at end-March 2001 – although some reports have put this figure higher. Banks should remove all existing NPLs classified bankrupt and near-bankrupt from their balance sheets within two years, and any newly-emerging NPLs within three years, according to financial sector reforms introduced by the Japanese government in June last year.

The RCC is also authorised to assist in the restructuring of loans classified as ‘needing attention’.