UFJ Holdings Inc, Japan's fourth-largest bank, and other Japanese lenders should work harder to clean up problem loans to their large-sized borrowers, Japan's Minister for Financial Services Heizo Takenaka said.

"I want them to sweat when crossing the mountain of bad loans," Takenaka said. "It's important for lenders to use the government's revival agency or private sector to revitalize big borrowers."

The nation's banking minister is urging lenders to make further efforts to meet targets for halving non-performing loans by March 2005 while UFJ, the only one of Japan's four biggest banks to make a loss in the last business year, lags larger rivals such as Mizuho Financial Group Inc and Mitsubishi Tokyo Financial Group Inc in dealing with bad loans to large-sized borrowers.

"The reason UFJ lost the market's confidence is its delay in dealing with problem loans to big borrowers," said Seiji Otsuka, a banking analyst at JP Morgan Chase & Co in Tokyo.

"Cleaning up its balance sheet is the best way for it to regain that confidence."

Shares of UFJ have dropped 16 per cent since May 24, when Japan's banks announced earnings, compared with a 2.7 per cent decline in the Topix Banks Index. Shares of Mizuho Financial, Japan's biggest lender, fell by 6.7 per cent after saying it earned 407 billion yen (US$3.63 billion) last fiscal year. Mitsubishi Tokyo's shares lost 7.6 per cent. It earned 560.8 billion yen (US$5 billion).

Osaka-based UFJ must get rid of 2.35 trillion yen (US$22.5 billion) of bad loans in 10 months.

UFJ is in talks with several financial institutions to sell Aplus Co, a credit card issuer that owes about 200 billion yen (US$1.78 billion) to the bank, people familiar with the sale said.

It is also selling UFJ Trust Bank Ltd to raise at least 300 billion yen (US$2.67 billion) to cover loan losses after regulators told the bank it underestimated bad debt at its biggest corporate clients.

UFJ may ask the Industrial Revitalization Corp of Japan, the government agency charged with reviving indebted companies, to help turnaround its large-sized borrowers, including Nissho Iwai-Nichimen Holdings Corp, a trading house, and Daikyo Inc, the nation's largest condominium builder, Japanese newspapers reported.

Borrowers need to consider different ways to deal with their creditors and the agency is one option, Takenaka said, when asked about the reports. He did not elaborate.

Daikyo and Nissho Iwai-Nichimen, which are being bailed out by UFJ, their biggest lender, on Thursday said they do not have any plan to alter their revival strategy. The companies made the remark separately in response to a Sankei newspaper report that UFJ may come up with new restructuring plans for the two Tokyo-based companies.

Daikyo has not been contacted by UFJ about a reported plan, spokesman Takeshi Ohkoshi said on Thursday. Nissho Iwai-Nichimen made a similar comment in a faxed press release.

Falling bad loan ratios among lenders has helped Japan's economic expansion as lenders work to write off bad loans that have threatened growth in the past, Takenaka said.

"When we said we wanted to lower bad loan ratios to around 4 per cent in 2-and-a-half years no one thought it would be possible," Takenaka said. "Now it looks like that can be achieved six months ahead of schedule."

That progress "is proof" the economy has improved, he said.

Japan's economy grew at an annual 5.6 per cent pace in the first three months of 2004, the fastest pace of growth in the Group of Seven Industrialized nations. The world's second-largest economy has expanded for eight quarters, its longest stretch of growth since 1997.

"The Japanese economy is definitely doing better," Takenaka said. "While there was always concern of a financial crisis when economic growth slowed, that hasn't happened because things are different this time."

(China Daily 06/07/2004 page12)