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OSAKA — Kyoto Kyoei Bank said Oct. 14 that it will begin liquidation procedures and transfer its operations to Osaka-based Kofuku Bank by next Oct. 1, after using funds from the Deposit Insurance Corp. to get rid of its nonperforming assets.Kofuku, another second-tier regional bank with bad loans of its own, meanwhile unveiled a package of measures aimed at improving its financial standing over the next year. The plan includes such steps as cutting wages, closing branches and securing fresh capital from companies within its corporate group.The announcements come on the heels of a decision last week by two other banks in the Kansai region, Fukutoku Bank and the Bank of Naniwa, to merge next October. The developments have added fuel to questions over the credit-worthiness of Kansai financial institutions.All deposits at Kyoto Kyoei will be protected and it will continue regular business until next October, but special loans from the Bank of Japan will be made available if it finds itself short of funds during that period. Kofuku President Tokusuke Egawa told a news conference that Kyoto Kyoei executives, including President Katsuaki Yoshinaga, will step down to take responsibility for the liquidation.Yoshinaga said he is deeply sorry that the bank is being forced to liquidate. Egawa added that the situation is so serious that an infusion of fresh capital would not salvage the situation.One of the conditions under which Kofuku agreed to take over Kyoto Kyoei’s operations was that four of its branches, including three in Fukui Prefecture, would be sold to another bank. Both banks are unlisted and have posted pretax losses for the past two business years, but Egawa said he aims to have Kofuku Bank become a listed firm within five years.Kyoto Kyoei officials said the bank had no choice but to abandon internal efforts to prop up its operations. They cited difficulties overcoming the fall in land prices after the collapse of the bubble economy. The bank had aggressively extended credit in the real estate business.Finance Ministry inspections, which began in April and were completed Sept. 30, showed that Kyoto Kyoei had irredeemable liabilities of roughly 28.1 billion yen, according to ministry officials. In contrast, as of March this year, its capital was put at 13.1 billion yen. In addition, the ministry said another 16.4 billion yen in loans were categorized as unlikely to be reclaimed.Meanwhile, the bank itself announced that Finance Ministry investigations put its total bad loans at 129 billion yen, much larger than the bank’s estimates of 25.9 billion yen as of the end of March. Deposits at the bank, which has 46 branches located mostly in Kyoto Prefecture, totaled 341 billion yen as of the end of March.

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