|
It
is now official! Japan's decade-long financial crisis is over
and the sun is finally rising! The recovery mode of the economy
continued throughout the year 2005 and strong improvements
were observed in retail sales growth, trade performance, industrial
output, and more importantly increased consumer spending as
well as an improved bank lending. In fact, the global financial
system is in better shape than in the past. For the first
time in a decade, the US, Europe and Japan are growing in
tandem complemented by the added benefit of strong growth
in China, India and most of East Asia.
The
stock market and the real estate bubbles that burst in the
early 1990s had two effects on Japanese banks, the pillar
of the Japanese financial system. First, as banks held much
of their investment as equity shares in other companies, the
decline in the stock market caused the banking system's capital
base to evaporate. Second, the sharp decline in land prices
undermined the asset side of the bank's balance sheet. Besides,
the augmented bankruptcies of non-financial companies exacerbated
the non-performing loans (NPL) problem of the banking system.
The
troubled banking sector almost collapsed at one point in 2003
after it poured loans into unproductive businesses and, even
worse, real estate deals. However, to clean the banking system,
the Japanese government couple of years back injected funds
into them to help write off bad loans because a healthier
banking sector means more loans and economic growth. These
developments helped the sector and they drastically cut NPLs,
which totaled approximately $440 bn in 2002 by 50% and now
have shown signs of returning to growth.
|
