The 15 Japanese banks that received injections of public funds increased their lending to small and midsize firms by a total of 4.25 trillion yen in fiscal 1999, exceeding the 2.99 trillion yen increase previously pledged, the Financial Reconstruction Commission said Thursday.
The banks received 7.46 trillion yen in public funds from the government in March 1999. At the time, they promised to increase loans to small and midsize firms as a condition of receiving the injections of funds due to public criticism that the banking industry was tightening credit and prompting bankruptcies among such businesses.
According to the FRC, all but three of the 15 met their announced targets. The banks’ total outstanding loans to small and midsize companies at the end of fiscal 1999 stood at 115.92 trillion yen, up 2.99 trillion yen from the previous year.
While most banks met their goals, FRC officials said banks were found to have been engaged in practices that, intentionally or unintentionally, made their loan volume look bigger than it actually was.
Banks got into hot water recently as allegations were made that the banks purposefully “padded” the figures.
On April 4, a few days after the banks closed their books for fiscal 1999, the Japanese Bankers Association reported to a Diet committee the banks’ preliminary loan figures to small and midsize firms at the end of fiscal 1999. Their total lending volume to such companies was expected to be between 4.8 trillion yen and 5.3 trillion yen.
But the figures compiled by the FRC show that the banks revised the figures downward to 4.2 trillion yen, some 1.1 trillion yen less than the estimate reported by the JBA. The FRC said a large part of the gap between the preliminary figures and the actual results is attributable to short-term loans the banks made immediately before the March 31 end of fiscal 1999, which were collected within a few days.
In some cases, the borrowers of such short-term loans put up deposits during the same period — an apparent sign that some of the loans were not need-based.
The FRC, while stopping short of calling such loans illegitimate, said it instructed the banks to exclude them from the total of loans to small and midsize businesses that they are required to report under the Bank Recapitalization Law.
Of the three banks that failed to meet their increase targets, the Industrial Bank of Japan had projected their lending would go up by 183 billion yen — but ended up with a 48 billion yen increase. Yokohama Bank slightly missed the mark, finishing with a 81.4 billion yen rise in lending compared to the originally targeted increase of 90 billion yen.
The former Mitsui Trust & Banking Co., which merged with Chuo Trust & Banking Co. in April, also fell short of its plan. It had originally intended to increase lending by 162 billion yen but ended up with only a 78.4 billion yen increase.
FRC officials said they have asked the three banks to submit reports on why their lending did not match their pledges, as well as how they plan to meet their targets for the current fiscal year, which runs through next March.
Grip on Sowa stays
The Financial Reconstruction Commission has decided to keep Tokyo Sowa Bank, a regional bank that became insolvent in June 1999, under state control for up to one more year, commission sources said Thursday.
The commission made the decision anticipating that the bank’s administrators will not find a new owner by the June 12 deadline.
The Tokyo-based bank was once considered the most competitive of Japan’s 60 second-tier regional banks.
However, it incurred a capital deficit last year under the weight of massive bad loans made to the real estate sector in the late 1980s.
The FRC appointed administrators to straighten out the bank’s assets and liabilities and select a financial entity to take over its operations.
The sources said the administrators have been in talks with several candidates, including a U.S. investment group and Shinsei Bank, formerly known as the Long-Term Credit Bank of Japan.
The nationalized LTCB was recently bought by a consortium led by Ripplewood Holdings LLC of the United States.