The Finance Ministry strongly urged Nippon Life Insurance Co. to provide financial support to Nippon Credit Bank, currently under state control, in the spring of 1997, Nippon Life Vice President Tsuyoshi Nahara said Tuesday.
In unsworn testimony before the day’s Upper House Budget Committee session, Nahara said the ministry requested his firm help NCB increase its capital and said that if Nippon Life failed to extend its support, NCB would collapse and endanger the overall financial system. “We received a strong request from the Finance Ministry and we regarded the ministry’s involvement to be significant,” Nahara said.
NCB, which was placed under government control in December, asked the nation’s major financial institutions to provide funds worth 210 billion yen to increase its capital in April 1997 as part of its reconstruction efforts.
Nahara also admitted that his firm asked the ministry to sign a document in May 1997 to confirm the Finance Ministry’s commitment to NCB’s reconstruction and to ensure that the ministry would not urge further financial assistance from Nippon Life.
The document, dated May 30, 1997, also says that Nippon Life’s subordinate loans to the long-term credit bank would be protected.
Nahara also said his company received a phone call from NCB on May 19, 1997, informing it that the bank’s “third category” problem loans totaled an estimated 700 billion yen.
NCB has widely been criticized for allegedly hiding the true extent of its nonperforming loans in applying last March for public funds to replenish its capital base.
Although the Finance Ministry in September 1997 officially announced that NCB had about 1.12 trillion yen worth of third-category risk assets, or loans regarded as highly unlikely to be collected, the nation’s smallest long-term credit bank had previously reported that those bad loans amounted to 700 billion yen.
Along with Nahara, Kimio Yamaguchi, former chief of the ministry’s Banking Bureau, former NCB President Shigeoki Togo and Takanobu Nakagawa, former chief of the ministry’s inspection section, were also summoned before the committee for unsworn testimony.
Questioned by Tetsuro Fukuyama, an Upper House member of the Democratic Party of Japan, on whether the ministry is responsible for the document given to Nippon Life, Yamaguchi said, “The document is not a private one, and in that sense, I can say so.”
Yamaguchi also said that his ministry did not determine that NCB’s liabilities had exceeded its assets in March 1997, when his bureau carried out an inspection of the bank’s self-assessed bad loans to map out a reconstruction plan.
At the time, the government was resolved to prevent any active bank in either domestic or international markets from collapsing, and authorities believed the financial system could be maintained if a bank took steps to restructure and regulators offered strong support, Yamaguchi said.
However, the government concluded last December that NCB had a capital deficit of 94.4 billion yen at the end of March 1998.
The effective failure of the bank has led to sharp criticism from both the general public and lawmakers over the apparent inability of financial regulators to spot trouble at NCB before the attempted bailout using public funds last spring.