MERGER OF 2 JAPANESE BANKS CREATES POWER AND PROBLEMS

MERGER OF 2 JAPANESE BANKS CREATES POWER AND PROBLEMS

The merger of two huge Japanese banks this past weekend creates the world's second-largest commercial bank, but industry analysts say the leviathan faces problems as big as its burgeoning loan portfolio.

While acknowledging the gargantuan pains involved in merging two of the 15 largest banks in asset terms, officials at Mitsui Bank Ltd. and Taiyo Kobe Bank Ltd. said they are optimistic about the entity's long-term prospects.''We could be Japan's largest bank in profit terms in five years," said Mitsui president Kenichi Suematsu.

The union is aimed at merging complementary strengths.

Taiyo Kobe, a strong retail lender, will enjoy the close corporate contacts the larger Mitsui enjoys as the center of the powerful Mitsui industrial group, industry sources said.

The Ministry of Finance has been slow to permit Mitsui to open branches

because it has violated limits on lending to trading house Mitsui & Co., its biggest corporate customer.

It also faces falling profits from its bond trading business due to rising interest rates, and so wants to expand in retail banking. Taiyo Kobe's 374 domestic branches make it attractive to Mitsui, which has only 243.

Japanese banks, which hold the world's 10 largest loan portfolios, are under pressure to meet the 8 percent ratio of equity to risk assets, or lending, called for by March 31, 1993, by the Basel-based BIS.

Combined capital adequacy at the two merging banks was at 7.6 percent last August, when they first announced the merger.

Bank officials said the current ratio is unavailable, but analysts said the market's plunge has brought it down sharply, which will force Mitsui Taiyo to rein in lending to meet the BIS requirement.