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6 big Japan banking groups see sharp drop in profit on shareholdings.

TOKYO, Feb. 1 Kyodo

Japan's six biggest banking groups saw their latent profit on shareholdings plunging by 4.4 trillion yen to 3.6 trillion yen in less than four months from the end of last September on a heavy stock market decline, the Daiwa Institute of Research said Friday.

But even such a sharp fall in the latent profit is still short of having any serious impact on their ratios of capital, including some of the latent profit, to assets.

Their capital adequacy ratios stand above 10 percent and far exceed the 8 percent threshold for internationally active banks.

''Any decline in such latent profit has only a limited impact,'' said a senior official of a major bank.

The reduced latent profit was estimated on Jan. 22 when the 225-issue Nikkei Stock Average plunged to a 29-month low of 12,573.05.

If the Nikkei falls to around 9,500, the latent profit on shareholdings is expected to disappear at Mitsubishi UFJ Financial Group Inc., Mizuho Financial Group Inc., Sumitomo Mitsui Financial Group Inc., Sumitomo Trust & Banking Co., Resona Holdings Inc. and Chuo Mitsui Trust Holdings Inc.

''If the stock market falls sharply to cause a large latent loss on shareholdings, their capital adequacy ratios may be seriously affected,'' said Akira Takai, chief economist at the institute. ''At present, we do not have to worry about such a development.''

Japanese banks have considerably reduced their shareholdings, learning lessons from the past financial crises attributed partly to a sharp stock market decline that reduced their latent profit in a manner serious enough to affect their capital adequacy ratios.
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Publication:Japan Weekly Monitor
Date:Feb 4, 2008
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