Tokyo, July 25: Japan’s financial regulators have initiated procedures to issue an order to about 15 loss-making banks to improve earnings or face sanctions, financial sources said on Thursday. The measures are directed at most major banks, including three of the country’s four biggest banking groups —- Mizuho Financial Group Inc, Sumitomo Mitsui Financial Group Inc and UFJ Holdings Inc, the sources said.

The Financial Services Agency (FSA) on Thursday notified the banks, which had been recapitalised with public funds in the late 1990s but are still suffering under a mountain of non-performing loans, that they have until July 30 to make any objections.
Once a formal business improvement order is issued, the banks must come up — within a month — with revitalisation plans that include further restructuring, job cuts and other measures to improve earnings.

All the top seven banks posted losses in the year to March, although they say the worst of their bad loans and stock losses is behind them now. The FSA can issue a warning if a bank’s net profit or return on equity is more than 30% below their respective targets. This so-called “30% rule” has been in place since March 1999 but has never been implemented. The FSA has been tightening its grip on banks in recent months and in April set guidelines for converting preferred shares that the government holds in the banks into common stock with voting rights. Bureau Report