Tuesday, October 06, 2009

Here's an idea that might catch on over here....

The number of nonperforming loans in Japan is severely curtailing lending in their financial system. When a loan goes bad it impacts a banks ability to issue new loans because of the hit to the companies capital ratio. While this may slow some lending it keeps the banking system healthy and honest.

So, in today's down is up world, Japan has decided that nonperforming loans won't have to be classified as nonperforming and the banks won't have to collect interest or principle on the debt. I swear this could be an episode out of the Financial Twilight Zone.

"Lenders won’t have to classify loans encompassed by the plan as non-performing, Kamei, 72, said in an interview yesterday at his office in Tokyo. That means they won’t be forced to boost provisions when borrowers postpone repayments of interest or principal, he said. At the same time, Kamei vowed to push banks to extend more credit to small businesses after bankruptcies hit a six-year high in Japan.

“We’re going to get financial institutions to provide these firms with more loans,” said Kamei. “Banks won’t have to treat debt on which they provide a moratorium as bad.”

Apparently the lesson is from Japan is banks should lend money and if the borrower can't repay, ignore it and keep lending.....

No wonder China's about to cruise past Japan's economy and become the second largest in the world.

Cheers!

1 comment:

The Hermit said...

Talk about hiding your head in the sand. Makes me want to run out and buy Japan bank stocks. shiver....