Why Japanese banks don't care about profits

February 01, 1998

Sinking under bad debts, stung by criticism of their poor profitability and shocked by the falling prestige of the ministry of finance, Japanese banks are talking about changing their way of doing things. But why should bankers risk damaging their careers, upsetting their customers who are also their biggest shareholders and putting their fellow citizens out of work by adopting western practices? One western analyst says if he was in charge of a big Japanese bank he wouldn't care about making a decent return on equity, so why should they? Steven Irvine reports.

"If you'd asked anyone six months ago what the chances were of Hokkaido Takoshoku or Yamaichi going down the drain they would have assigned a very low probability to both events," says Masaru Kakutani, the representative director of Moody's Japan. "The mindset was they were too big to fail. When the mindset is violated people come out with a new model. The paradigm is evolving into something else."

The failures in November of Yamaichi Securities and city bank Hokkaido Takoshoku were indeed a serious shock to the financial system. Last month the government gave its most honest appraisal thus far of the scale of the banking sector's bad debts. At ¥76 trillion ($600 billion), the number was a massive advance on the ¥27 trillion put forward in September by the Japanese Federation of Bankers' Associations.

There appears to be a welcome outbreak of honesty and action. Accompanying the November bankruptcies was a statement from the ministry of finance (MoF) that "it is desirable that markets are moving in such a way as to redress irrational businesses".

"There are very rapid and radical changes going on," says Shuzo Aoki, formerly at the Bank of Japan and now advising the president of Tokai Bank.

Why Japanese banks don't care about profits

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