Big Japan banks need to improve earnings: S&P.

TOKYO, Aug. 11 Kyodo

Major Japanese banks and banking groups have yet to improve their earnings significantly although they have made progress in disposing of problem loans, Standard & Poor's said Wednesday.

Analyzing seven major banks' and banking groups' earnings reports for the April-June first quarter of fiscal 2004, S&P said all but UFJ Holdings Inc. returned to profitability on a consolidated net account basis in the period.

But the combined operating profit of the seven banks and banking groups was equivalent to less than a quarter of their profit in fiscal 2003 due to a drop in interest income on weak demand for loans, the U.S. credit-rating agency said.

Total lending volume at the banks and banking groups declined an average 2.7 percent because of still deteriorating lending demand from corporate customers, final disposal of nonperforming loans and some seasonal factors.

The outstanding balance of bad loans at six of the seven banks and banking groups dropped by 6.5 percent from the previous quarter, while the UFJ group posted a net increase, S&P said.

As for capital-adequacy ratios, S&P said it will review its ratings on UFJ Bank and UFJ Trust Bank, with positive implications, based on expectations that the group will receive capital infusions from other mega banks as part of any consolidation plan, as well as expected support from the government if needed.