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Shinsei Bank on Wednesday formally asked Deposit Insurance Corp. to take over 205 billion yen of its loans to embattled department store chain operator Sogo Co., bank officials said.

Whether the semigovernmental DIC will accept the request is seen as pivotal for the survival of the emporium operator. A final decision is expected by Friday.

In addition to general criticism over the use of public money to assist a private sector firm, regulators fear the repercussions should the retailer go under, making the decision a difficult one.

The loans in question are those extended to Sogo by Shinsei Bank’s predecessor, the Long-Term Credit Bank of Japan. The LTCB was Sogo’s second biggest creditor after the Industrial Bank of Japan, but the bank itself failed and was placed under temporary state control. It was later sold and renamed Shinsei Bank.

Informed sources said the DIC would take over the Sogo loans and then forgive 97 billion yen of the total on condition that it can collect the loans at an early time to curb the use of taxpayers’ money.

Under an agreement between DIC and Shinsei Bank, DIC will be able to collect the unforgiven Sogo loans in 12 years — a shorter amount of time than the 30-year collection period for Sogo’s other creditor banks, according to the sources.

As for specific measures to recover the DIC’s remaining 100 billion yen credit to Sogo, the DIC is seeking to obtain the consent of the IBJ to hand over 30 billion yen of the income IBJ is expected to accrue from Sogo’s repayment of the bank’s credit over the subsequent 12-year period, they said.

Contingent on a successful conclusion to the DIC-IBJ talks, the Financial Reconstruction Commission, one of the nation’s banking-industry regulatory bodies, is expected to approve the DIC plan to buy the 200 billion yen credit and forgive half of it at a meeting scheduled for Friday, sources close to the FRC said.

Sogo aid ‘unnatural’

The head of the Japan Chamber of Commerce and Industry lashed out Wednesday at the expected financial assistance for ailing department store chain operator Sogo Co. involving the infusion of public funds.

Speaking at a regular news conference, Kosaku Inaba said that the Sogo plan was an “unnatural” one in which the state was being used to bail out a private firm, and added that he hopes the assistance, if realized, marks the first and last time such a move is carried out.

In addition, he criticized the failure of the parties concerned to fully study the healthiness of the individual loans extended by the former Long-Term Credit Bank of Japan, which was placed under temporary state control and later sold. It is now called Shinsei Bank.

The former LTCB was Sogo’s second largest creditor bank after Industrial Bank of Japan.”(Both the bank and the Financial Supervisory Agency) made a mistake in their rush to do something after the situation (regarding Sogo) suddenly worsened,” Inaba said.