OSAKA -- Fukutoku Bank and the Bank of Naniwa, two Osaka-based regional banks suffering from mounting bad loans, announced Oct. 9 they will merge next Oct. 1 to speed up restructuring and strengthen their foothold in the region.The merger is expected to become the first one subject to an expected revision of the Deposit Insurance Law. An amendment stating that a deposit insurance fund can be used to support a new financial institution created as a result of a merger of two or more ailing banks, has been approved by the Cabinet. Under the current law, deposit insurance money is used only when a certain bank is taking over the business of a failed bank.Fukutoku President Koji Oike and Naniwa President Michio Ono said the two banks will merge on an equal basis, and the headquarters of the new entity will be in Fukutoku's main office. The name of the new bank has not yet been decided, they said. "We have been discussing this matter ever since both of us became president in July," Oike said. "Then the issue of revising the deposit insurance law emerged around August, and the Finance Ministry approached us and asked us to think about the merger with this development in mind."But Oike stressed that negotiations for merging have been continuing regardless of the revision, and that they will consider whether to apply the law to the deal after the details become clear. The merger is expected to be capitalized at 33.7 billion yen and have total deposits of 1.63 trillion yen.As of the end of September, the two banks had nonperforming loans totaling 120.565 billion yen, but they said they plan to dispose of them within three years after the merger.The new entity will go through a three-year restructuring plan that includes closing 30 subsidiaries and trimming its workforce to 2,000 employees from 2,430, through attrition. They said the downsizing would save the firm about 4 billion yen.
