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OSAKA — Documents from a Finance Ministry inspection of the defunct Kofuku Bank in 1995 showed a real estate firm with which the bank had ties was “saddled with a myriad of problems,” it was learned Thursday.

Kofuku, a second-tier regional bank, was declared insolvent in May by the Financial Reconstruction Commission. It has since been put under temporary state control.

The real estate firm, Kowa Fudosan, was run by relatives of former Kofuku President Tokusuke Egawa, who is under arrest in part for allegedly helping to arrange roughly 6.8 billion yen in illegal loans to the realtor, investigators said.

Two former Kowa Fudosan officials were arrested Wednesday for aggravated breach of trust. Egawa, his brother, Benji, and son, Tokuaki, were also served fresh warrants the same day.

Prosecutors and police believe the ministry inspection documents, which were submitted to the bank in February 1996 — a month before the illicit loans to Kowa Fudosan began — are evidence that the bank loaned to the realtor with full knowledge that the money would become irrecoverable, sources close to the investigation said.

The inspection began in August 1995, and the report says Kowa Fudosan “was having trouble securing operating funds because its large-scale development project was taking a very long time to be completed.”

Kofuku’s outstanding loans to the real estate firm at the time were already “nearing limit levels,” the report says, adding that very cautious management of these loans would be necessary.

According to the sources, the large-scale project mentioned in the report was a housing development in the city of Takarazuka, Hyogo Prefecture, that Kowa Fudosan was jointly undertaking with a real estate firm affiliated with a major private railway from around 1985.

Sales of the houses were sluggish due to the recession, and by around 1995, business was very bad, the sources said.

Investigators allege that Kofuku lent Kowa Fudosan a further 6.8 billion yen during the two years beginning in April 1997.

Egawa and the others were initially arrested last month for arranging some 2.5 billion yen in illegal loans to another Osaka-based real estate firm, Sogo Housing, in August 1995.

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