ABSTRACT
The Japanese banking sector has been struggling to find a way out of a morass of non-performing loans (NPLs) since the early 1990s. But the results have been disappointing. When the problem emerged in the early 1990s, both banks and government tried to conceal the fragility of the balance sheets. Their attitude was based on the optimistic expectation that the Japanese economy would soon recover from the aftermath of the burst of the ‘bubble’ at the beginning of the 1990s. They thought that economic recovery would quickly increase the prices of both shares and real estate, allowing them to manage the difficulties associated with NPLs in real estate and excessive investment on the part of borrower firms.
