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Toshiba's woes put spotlight on Japanese corporate loans

Toshiba Corp.'s current crisis has refocused attention on Japanese corporate loans, raising concerns about how any fallout from risky loan exposures could reverberate across the sector.

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The Japanese manufacturing conglomerate on April 11 reported an unaudited net loss of ¥532.5 billion for the nine months ended Dec. 31, 2016, largely on ¥716.6 billion of impairments related to unit Westinghouse Electric Co. LLC. The U.S.-based unit and some of its subsidiaries and affiliates filed for Chapter 11 bankruptcy protection on March 29.

In light of these losses, Toshiba also warned that it may not be able to continue as a going concern, and expects to record a net loss of ¥1.010 trillion for the year ended March 31.

The conglomerate's creditor banks, including Japan's three megabanks, have met on various occasions in recent times to discuss a restructuring plan, but have not yet reached an agreement about what such a plan should entail, The Nikkei reported March 29.

The company's difficulties could lead to an estimated ¥20 billion of provisions among its main lenders — Sumitomo Mitsui Financial Group Inc., Mizuho Financial Group Inc. and Sumitomo Mitsui Trust Holdings Inc. — Keefe Bruyette & Woods wrote in an April 10 note.

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The creditor banks will likely make modest provisions for the fiscal year ended March 31, after they internally downgrade these loans, David Threadgold, a bank analyst at KBW, told S&P Global Market Intelligence.

At this stage, however, the banks probably will not classify their Toshiba exposures as nonperforming loans, which would prompt a much larger level of provisioning, Threadgold added.

"[The] capital levels and ratios of NPLs at Japanese banks are healthy enough to withstand [any losses on Toshiba loans]," said David Marshall, a Singapore-based analyst at CreditSights.

Problem loans as a percentage of gross loans at Japanese banks have been declining in recent years. The sector's aggregate NPL ratio fell to 2.08% in the year ended March 31, 2016, from 3.18% in fiscal 2012, according to SNL Financial data, an offering of S&P Global Market Intelligence.

Takeshi Kunibe, president and CEO of Sumitomo Mitsui Financial, noted during a March press conference that "stable financial support for Toshiba is vital for its revival," and said the bank will ensure cooperation between all of the conglomerate's lenders.

As of April 12, US$1 was equivalent to ¥109.48.

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