Provisional and unofficial summary

Basic Policy for Fiscal and Economic Management and for Economic and Social Structural Reform

-Financial Sector-

21 June, 2001
The Council on Economic and Fiscal Policy

Drastic resolution of non-performing loans (NPLs)

1. Ensuring the ultimate disposal of NPLs and enhancing public disclosure

• Major banks are expected to dispose of their NPLs promptly following the clear time schedule laid down in the Emergency Economic Measures of April, with a full understanding of the mechanisms of how new NPLs appear.
• A precise understanding of the volume of the NPLs and their disclosure
• Disclosure of the progress made in the disposal of NPLs

2. Conducting rigorous monitoring of the disposal of NPLs

• Rigorous monitoring of the progress made in meeting the target of removing NPLs.
• An accurate assessment of the progress made in dealing with the entire NPL problem including the new appearance of NPLs. This will be conducted with reference to new indicators such as the share of NPLs in total outstanding loans, and the credit expense ratio.

3. No ultimate solution to the NPL problem without revitalization of the industry

• Resolution of the NPL problem in an integrated manner with structural problems of corporate/industry borrowers such as excessive corporate debt and inefficient operations
• Amendment of the Corporate Reorganization Law and the Civil Reorganization Law for judicial workouts
• Establishment of the guidelines to enhance the fairness and efficiency of private workouts

4. Resolution of NPLs through use of the Resolution and Collection Corporation (RCC)

• NPLs that can not be removed within the 2 to 3 year timeframe are urged to be sold to the RCC.
• Allowing the RCC to assume the NPLs of financial institutions through a trust scheme
• The RCC will seek revitalization of the borrower through judicial or private reconstruction procedures for companies worthy of reconstruction.
• Expansion of the functions and the organization of the RCC (e.g. creating a new section in charge of corporate restructuring).
• Securitization of NPLs and real-estate collateral with reference to the example of the RTC in the US.

5. Enhancing the safety net against the impact of NPL disposal

Structural Reform in the Securities Markets

1 Developing market infrastructure

• Enhancing market surveillance and enforcement capacity
• Clarification of rules prohibiting fraudulent activities such as insider trading or market manipulation
• Improvement of accounting, auditing standards and quality of auditing practices
• Changes in various systems and frameworks including the tax system to carry out the necessary shift in the priority of the financial system from savings to investment

2 Regulation on shareholdings of banks

• Appropriate risk management of shareholdings in a manner consistent with international standards (the revised Basel Capital Accord)
• Limiting banks' holdings of shares to within their capital

3 The share purchasing scheme

• Promptly working on establishing the Banks' Shareholding Acquisition Corporation (provisional name) as a safety net (including other related measures such as exchange traded funds (ETFs))