The Japanese authorities' efforts to stem the erosion of confidence in the domestic finan- cial markets were dealt a severe blow yesterday by poor credit ratings for the banking industry from Moody's and Standard & Poor's.
The long-awaited financial strengths ratings from Moody's Investors Service, the rating agency, amounted to a harsh assessment, according the large banks a below-par C rating, and the trust banks and regional banks low D and E ratings.
This is the first time that Moody's has rated Japan's 50 leading banks, ravaged by bad loans following the bursting of the land and asset price bubbles of the early Nineties.
The C rating for the leading financial institutions is lower than ratings Moody's would normally have given big commercial banks in other industrial countries.
Stephen Lewis, of London Bond Briefing said: "The Moody's rating decision will tend to undo whatever good the Ministry of Finance and the Bank of Japan have achieved in allaying market concerns over Japanese bank stability. It is a reminder that bad and doubtful loans on the banks' books are still rising."
Standard & Poor's yesterday placed the debt ratings of five Japanese banks on credit watch with negative implications, citing the "length and severity of the problems facing the Japanese banking sector that have heightened the industry's overall risk profile". Mitsubishi Bank and Sanwa Bank short- and long-term debt ratings were placed on credit watch negative along with the long-term ratings of Dai-ichi Kangyo Bank, Fuji Bank and Sumitomo Bank.
Japanese analysts estimate that bad loans in the financial system total some 40,000bn (pounds 275bn), while private analysts believe the real figure could be much higher. In particular, there are fears that the true extent of the housing loan crisis has still to be revealed.