The asset inflation underlying the boom in bank loans has ceased, and lending using stocks as collateral or for acquiring real estate is being scrutinized carefully. Nihon Keizai Shimbun, April 6, 1994. Reported in English in Foreign Broadcast and Information Service. April 6, 1994. The non-performing loans are likely to continue to exert a drag on economic recovery in Japan, although their precise effect is difficult to gauge.
Japanese banks are large with huge loan portfolios.
The major banks still are reporting profits, although at depressed levels, but those profits are being generated partly by sales of stocks. Eventually, such stock holdings will be depleted, and write-offs will eat directly into profits. More mergers and even some bankruptcies are likely to occur. A side effect of the problem has been the diminished confidence by Japanese bankers in their strategies and management and by the Japanese public in the ability of their government to administer financial affairs. Combined with the current recession and other economic problems, the non-performing loans are a stark reminder that the golden age of Japan as an economic miracle seems to have passed and that the country now faces problems similar to those in other industrialized nations.