Loans not counted as nonperforming and unsecured. Finally, FSA released a recent report on bad loans by the Federation of Bankers' Associations of Japan that covers the entire banking industry. Like FSA's report, the industry association survey relied on banks' self-assessments of the quality of individual loans. No payment of interest or principal for 6 months or more 10,771 Unrecoverable 6,843 Class IV - Defaulted or unrecoverable n.a. FSA cites the increase in bad-loan reserves and the relatively steady levels of Class II and Class III loans as evidence that banks are attacking their problems aggressively.
Outsiders generally disagree.
First, they point out that setting aside reserves for possible loan losses is not the same as writing off soured loans. In the former case, nonperforming loans remain on banks' books and could be a source of more trouble in the future. Japanese banks need to get problem notes off their books entirely, analysts argue. Second, the steady levels of Class II and Class III loans are warning flags when combined with the surge in loan-loss reserves. To observers, the relatively flat numbers simply mean that as fast as banks set aside money for their current bad loans, Class II loans are deteriorating into Class III-quality assets and Class III notes are becoming Class IV, or unrecoverable, loans.