tabulates the amounts of restructured loans by different groups of financial institutions and their ratios to total loans extended, estimated at the end of September 1995. Among 21 major banks in Japan, trust banks as a whole exhibited a very high restructured loans/total loans ratio of 5.7 percent, compared to 1.8 percent among city banks and 3.4 percent among long-term credit banks. Because trust banks are closely associated with land developers, there is a risk that these restructured loans could eventually turn into nonperforming loans.

However, the entire stock of reported nonperforming loans will not necessarily become a loss to financial institutions. Based on the figures shown in Table 3, some part of the bad loans have already been covered by collateral or another institutional instrument designed to pay off the loss. For the stock of nonperforming loans, it is reported that about 37 percent of the total amount is covered by collateral. Special loan-loss reserve accounts cover another 28 percent.<sup>10</sup> As a result, unresolved loss is estimated at around 8.4 trillion yen, only one third of the 24.4 trillion yen of nonperforming loans reported by deposit-taking financial institutions. As to the stock of restructured loans, except for those made to "Ju-Sens" (housing loan companies), half the amount (3.4 trillion yen) is expected to be normalized, and 37 percent has been covered by collateral. The potential loss is therefore projected at around 2.1 trillion yen. Estimating the potential loss in loans made to Ju-Sens is not straightforward. However, in the event that all the bad loans made by Ju-Sens are attributed directly to parent banks as loan losses, they would amount to about 7.7 trillion yen. The total amount of noncovered bad loans that have to be dealt with by deposit-taking financial institutions can be estimated at 18.3 trillion yen (US $183 billion at 100 yen/$).

In Figure 11, the size of bad loans is portrayed by type of bank against its collateral, loanloss reserve, and latent gains of listed securities. As the figure shows, small deposit-taking institutions as a group had already faced the risk of capital inadequacy at the end of September 1995, with about 1.58 trillion yen worth of their bad debts not covered by collateral, reserves, or latent gains of their security holdings. The situation among smaller financial institutions is therefore much worse than that _of_ larger banks, and it will likely take them much longer to restore their financial stability, if it can be done at all without a crisis. Even the major 21 banks are on shaky ground, since their latent gains of listed securities are subject to wide variations depending on the performance of the stock market. In addition, land - most of which is still falling in value - is a predominant component of the collateral for these bank loans.

Many private researchers regard the official estimates of bad loans as extremely low, since they believe that these debts have been largely underreported. Private estimates of bad debts range from 50 trillion yen ($500 billion) to 100 trillion yen ($1 trillion).

Nonetheless, it would be reasonable to say that 30 to 40 percent of total bad loans had already been covered by mid 1995 with accelerated transfers to loan-loss reserves and by liquidation through the Cooperative Credit Purchasing Corporation Ltd (CCPC). And banks' operating profits

**10** Coverage rates of bad loans are estimated by a Ministry of Finance survey of all banks in Japan and by the price of the credits purchased by Cooperative Credit Purchasing Corporation Ltd. _(Saiken Kaitori Kiko)._ At the end of March 1995, the average ratio of covered bad loans to total bad debts was about 40 percent in both estimates. In September, the coverage rate estimated by the same methods declined to 37 percent, due mainly to a decline in land prices in city areas.

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