Английский язык для экономистов - Малюга Е.Н.
ISBN 5-469-00341-8
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2. Give your reasons for and against state-owned banks.
K Reading the English newspaper
H.l. Read the article and do the exercises.
Bad Debts and More Bad News
Krishna Guha, "Financial Times"
It is generally agreed that the banking system is malfunctioning, and the amount of credit outstanding is in steady decline.
Is Japan's economy in a mess because its banks are so weak they cannot lend? Or are the banks unable to lend because the economy is in such a poor state there is no demand for credit? This is probably the most important line dividing the two main schools of thought on what is wrong with Japan — and what needs to be done to get its economy growing again.
On one side are those economists who argue that bank credit is falling because the banks — which have massive bad debts and weak capital structures — cannot support any new lending. On the other, those who argue that it is impossible to find creditworthy borrowers since the corporate sector already has too much debt, the economy is shrinking and prices are falling. In any case, they say, bank lending will inevitably decline as big companies make more active use of capital markets.
No one disputes that the banking system is malfunctioning, and the amount of credit outstanding is in steady decline. Tales abound of banks turning away depositors because they do not know what to do with the money — even of banks placing deposits with competitors and having to take them back after being found out.
The issue is one of cause and effect. Not surprisingly, most businessmen believe there is a supply of credit problem, and most bankers believe there is a demand for credit problem. "There is no demand for loans," says Toru Hashimoto, retiring chairman of Mizuho Holdings. There is some truth in both arguments. Japan's banks are preoccupied with their bad debts, which 130
Английский ЯЗЫК ДЛЯ экономистов
threaten their survival. Estimates of the total amount of loans which will eventually have to be recognized as bad range from ? 70,000 bn to more than ? 200,000 bn.
In many cases, the total loss after collateral would wipe out all or most of the banks' capital. No matter how freely deposits are available, banks need capital to make loans, particularly riskier ones. Butgovernment bonds are risk-free assets for regulatory purposes (in spite of the substantial market risk).
So money pours into Japanese government bonds. As a result, even though Japan's government is under attack from the ratings agencies, 10-year JGBs yield only 1.35 per cent. Highly rated companies — particularly those able to choose between bank loans and raising finance through bonds or commercial paper — also enjoy easy access to credit.
"The banking sector is obviously a matter of concern for all of us. But we, as a company, have no problems at all obtaining finance," says Taizo Nishimuro, chairman of Toshiba.
At the high end of the credit spectrum there is no credit problem at all. The problem begins lower down, with higher risk borrowers. Japan does not lack credit per se — it lacks a properly functioning credit yield curve. The banks' lack of capital is a much bigger problem here — but other factors are clearly at work, too.
Analysis of the corporate sector shows growing polarization in credit quality between those companies that have access to loans but for the most part do not need them, and those that do not have access, but do.
This is only to be expected in an economy suffering from negative growth and price deflation. Even without capital constraints, the banks would naturally reduce their overall lending, and take part in a "flight to quality." Moreover, most big companies outside the top credit bracket already have too much debt — a legacy of the bubble years, when any company with tangible assets, such as land, could obtain cheap credit.
Such companies may want new loans — and may even need them to stay alive — but until their overall debt burden is reduced it would be imprudent for the banks to lend to them. Indeed, many companies are engaged in a desperate effort to cut debt, at least in nominal terms.
This would not change even if the banks had plenty of capital. And this helps to explain why new banks and foreign lenders have not rushed in to meet unfulfilled demand for loans from creditworthy companies. There isn't any; not in the conventional business loan market anyway. But there is unsatisfied demand in the small-to medium-sized business sector, and for consumer finance. Unit 7. Banking
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Interest rates on consumer loans start at about 15 per cent. This could reflect risk — but the rapid growth and sustained profitability of consumer finance companies, such as Takefuji, and the entry of foreign lenders, such as GE Capital, suggest there is a lack of supply.
The same story may be true for the small- and medium-sized corporate sector. Although these companies are effected by the decline in the economy, and some by structural changes, most at least were not overlevera-ged in the first place.
