No “new role” for RCC in Japanese NPL clean-up, claims ING

The decision by Mitsubishi Tokyo Financial (MTFG) to step up its sell-off of bad loans to the Resolution and Collection Corporation (RCC) will have little tangible effect on cleaning up Japanese financial institutions’ burgeoning non-performing loans (NPL), banking analysts at ING Securities claimed.

The ING analysts’ comments follow a statement by Shigemitsu Miki, MTFG president, saying MTFG would sell off a significant portion of its NPLs to the state-backed RCC – possibly in the region of $4 billion. The decision was greeted in the media as a ringing endorsement for the new ‘market prices’ being offered by the RCC for loans this year, prompting speculation that other large Japanese banks, such as Mizuho, UFJ and SMBC, would step up their disposal efforts. The RCC was criticised last year for underpaying banks to take NPLs off their books.

But ING senior financial analyst in Tokyo James Fiorillo said MTFG would only sell loans against which it already holds a great deal of reserves. “It would appear that the RCC is still prepared to only buy loans where the banks can take a serious cut on book value,” said Fiorillo. He claimed the RCC would not deviate significantly from its stance on trying to avoid public fund use. “This has made the RCC generally rather useless to the banks,” Fiorillo claimed.

He reiterated industry calls for the Japanese government to use public funds to resolve the banking system’s chronic non-performing loan issue. “Banks are doing all they can given capital limitations. We believe it is the government that should be stepping in to clear the NPL problem. We still see no sign of impending movement,” said Fiorillo.