Japan, the second largest economy, had a very weak banking sector whose problems of Non-Performing Assets (NPAs) and mounting losses had assumed crisis proportions. Its economy was in a deflationary spiral, not the best opportunity for banks to radically reform. The banks' excessive exposure to sensitive sectors, major corporates and profligate construction companies had landed them in a big mess of mounting non-performing loans. The steep fall of stock market prices and real estate prices accentuated the crisis. The reform process included stricter rules of NPA classification, accelerated write-off of bad debts, sale of bad debts to `Resolution and Collection Corporation', besides corporate Debt Restructuring.

Japan, a major economy with a population of over 12 crore people, had experienced its worst banking crisis. Its leading banks, which were world's major players till recently, had been fighting for survival with mounting losses and bad loans. During the mid 1990s, these banks lent massively to the real estate sector and the equity market sector.

Both these sensitive sectors experienced crashes, resulting in huge losses to the banks. The losses were so astronomical, aggravated by the recent global slowdown and corporate failures, that Japan was unable to solve the problem, even though it did take certain radical steps. The banking reform process included progressive reduction of exposures to sensitive sectors and reverting to basics while lending. Japanese banks have also been trying to reduce financing to the construction sector, where a lot of slush money flows in to the pockets of politicians and power brokers through the medium of questionable construction projects.

Both these sensitive sectors experienced crashes, resulting in huge losses to the banks. The losses were so astronomical, aggravated by the recent global slowdown and corporate failures, that Japan was unable to solve the problem, even though it did take certain radical steps. S

Professional Banker Magazine, Japanese Banks, Non-Performing Assets, NPAs, Stock Markets, Global Banking Crisis, Equity Market Sector, Discounted Cash Flows, Accounting Standard, Risk Management, Resolution and Collection Corporation, Deposit Insurance Corporation, DIC, Economic Policy, Merger and Acquisition, M&A.