TOKYO, July 17 -- (Kyodo) _ Four major Japanese banks booked a combined 50 billion yen loss over their disputes with customers on foreign exchange derivatives in fiscal 2011 to March 2012, industry sources said Tuesday. The combined loss includes some 30 billion yen for Mizuho Bank, some 10 billion yen for the Bank of Tokyo-Mitsubishi UFJ, about 6.5 billion yen for Resona Bank and several billions of yen for Sumitomo Mitsui Banking Corp. Sumitomo Mitsui Trust Bank and some regional banks also booked such losses. The losses covered payments for settlements to their disputes with foreign exchange derivative contract partners and reserves for future payments of that kind. Companies handling exports or imports conclude foreign exchange derivative contracts with banks to buy or sell foreign currencies at certain rates at future points in a bid to help reduce foreign exchange costs. An exporter expecting the dollar's rise against the yen may conclude a contract to buy dollars in the future at a lower rate than at present to cut future dollar-buying costs. If the dollar falls unexpectedly, however, the firm may have to pay higher costs and suffer losses. In a period between 2005 and 2007 when the dollar traded at between 100 and 120 yen, banks activated sales of foreign exchange derivatives contracts as a means to ease exchange rate fluctuation risks. As the dollar has dropped rapidly to around 80 yen and maintained its historic weakness for a long time, many derivative contract holders have suffered heavy losses, leading to growing disputes with banks that had sold these contracts. The Japanese Bankers Association created an alternative dispute resolution system in October 2010 to cope with such increasing disputes. In fiscal 2011, the number of applications filed for settlements to foreign exchange derivative disputes under the ADR system rose 4.7-fold from the previous year to 733. An executive at one of the big banks said, "Our loss has expanded as we have seriously promoted settlement talks with customers." In some cases, however, banks failed to give strict explanations about foreign exchange derivatives when selling them or sold them to companies having no foreign exchange transactions, another industry source said. Banks had aggressively sold foreign exchange derivatives that can quickly produce profits for them. Following the sharp increase in fiscal 2011, banks expect ADR applications may decline. But given that the number of small companies with foreign exchange derivative contracts stood at some 19,000 in September 2010, ADR applications could increase on the yen's prolonged strength.

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