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A committee of the Financial Reconstruction Commission said Monday it has evaluated the stocks of the failed Nippon Credit Bank as worthless.

The FRC’s evaluation committee made the decision based on NCB’s capital deficit of some 3.05 trillion yen as of Dec. 17, when it was placed under temporary nationalization.

As a result, the 60 billion yen in public funds injected into the NCB in the form of preferred stocks in March 1998 will not be returned to the state.

The 3.05 trillion yen deficit surpassed the 2.65 trillion yen held by the Long-Term Credit Bank of Japan, another nationalized institution. LTCB’s stocks were also evaluated as worthless in March 1999.

Of the 3.05 trillion yen deficit, about 1.3 trillion yen were loans to NCB’s affiliated firms that have been deemed irrecoverable.

The bank had a capital surplus with net assets worth 520 billion yen as of Dec. 16, the FRC committee said. But this figure did not reflect the most recent inspection by the Financial Supervisory Agency and was assuming the bank would continue to operate.

In evaluating the bank’s assets and liabilities, the FRC committee used the inspection results and treated the bank as an entity to be liquidated. Considering these two factors, the modest capital surplus became a huge deficit, FRC officials said. It is “truly regrettable” that the public funds injected into the Nippon Credit Bank have now become irrecoverable, Vice Finance Minister Koji Tanami said Monday.

But he also indicated the capital injection was the best available option as of March 1998 because there was no solid framework to handle a financial system crisis at the time.

The capital infusion was decided on by a government panel, which was headed by Keio University professor Yoko Sazanami and included then finance minister Hikaru Matsunaga.

A second capital injection, carried out in March 1999 for 15 major banks, was based on the new banking-system stabilization law enacted last October.

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