Kokumin Bank, which was declared insolvent Sunday, had a 71.2 billion yen capital deficit as of Sept. 30, 1998, the Financial Supervisory Agency revealed Monday.

The Tokyo-based second-tier regional bank had underestimated the amount needed to write off its bad loans by 76.2 billion yen while its net worth amounted to only 5 billion yen, the FSA said.

The capital deficit will total 77.7 billion yen if 6.5 billion yen in latent losses — including those for its holdings of stocks and bonds — are included, it said.

Of Kokumin’s total assets of 619.7 billion yen, the amount of problem loans came to 198.2 billion yen, including 56.9 billion yen in irrecoverable loans, according to the FSA’s assessment. The bank had not included what FSA considers irrecoverable in its self-assessment.

The bank had not calculated sufficient loan-loss reserves based on “reasonable foundations,” an FSA official said, noting the bank lacked accurate information about its borrowers’ financial health.

The bank initially set aside reserves for 11 percent of its risky “third-category” loans. The FSA determined the ratio must be raised to 72 percent.

The bank’s bad loans have soared because it lent to the real estate industry extensively during the economic bubble, the FSA official said. Collateral values plunged in line with land prices in the Tokyo metropolitan area, the official added.

The FSA carried out an on-site inspection at the bank from January to March, and formally informed the bank of the results earlier on Monday. At a Sunday evening news conference, the bank’s managers did not disclose information about its assets.

Kokumin was placed under supervision by the state on Sunday, with financial administrators appointed by the Financial Reconstruction Commission to handle the bank’s management. The FRC, the decision-making government body above the watchdog FSA, will look for another bank to take over the operations of Kokumin and will transfer its bad loans to the state-run Resolution and Collection Corp.

Akira Tachimoto, a certified public accountant, lawyer Hideki Matsushima and the Deposit Insurance Corp., a banking safety net funded by premiums paid by financial institutions, were appointed by the FRC to administer the bank’s financial reorganization.

Later on Sunday, the newly appointed administrators said they had officially received letters of resignation from the president, vice president and chairman of Kokumin Bank.

Tachimoto told a news conference that the administrators will decide the fate of the remaining executives — four managing directors and eight lower-ranking directors — as soon as possible.

Tachimoto said all of the bank’s deposits are protected through special loans pledged by the Bank of Japan, but refused to comment on whether Kokumin Bank has already received such loans.

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