The Financial Reconstruction Commission unveiled guidelines Thursday for the injection of capital into credit associations and credit unions, the collapse of which could wreak havoc on local economies.
These small lenders should in principle have a capital adequacy ratio of 4 percent — the minimum standard for non-international banks — to be eligible for a bailout, the FRC said.
But the lenders should first make sufficient efforts to build up their capital bases by asking local businesses for help, according to the guidelines.
The guidelines were issued as the Financial Supervisory Agency prepares to begin intensive inspections of nearly 300 credit unions formerly under the control of prefectural governments. The inspections will be conducted between July and March. These small institutions are eligible for recapitalization with public funds until March 2002, a year longer than banks.
Similar guidelines for major banks and regional banks have already been drawn up and are being used for the injection of capital, including 7.5 trillion yen used for 15 major banks in March 1999.
The latest set of guidelines do not state that the 4 percent capital adequacy ratio is the absolute condition for public funds.
FRC chairman and Cabinet minister Sadakazu Tanigaki told reporters that a capital infusion to institutions with less than 4 percent is “not ruled out theoretically,” calling the 4 percent line “a rule of thumb.”
Special treatment should be granted to lenders deemed indispensable to a local economy or those planning mergers that would stabilize the local financial system, the guidelines say.
Tanigaki emphasized that the purpose of injecting capital is not to rescue an individual institution but to consolidate the financial system.
Credit associations (“shinyo kinko”) and credit unions (“shinyo kumiai”) both lend primarily to small, local businesses, but credit unions are more membership-oriented. The FSA did not have jurisdiction over credit unions until April.
The ruling coalition cited the relative weakness of credit unions when it decided in December to postpone the planned ending of full government protection of all bank deposits for one year to March 2002.
No politics: Aoki
Chief Cabinet Secretary Mikio Aoki said Thursday that politics is playing no part in discussions on Shinsei Bank’s request for the state-run Deposit Insurance Corp. to buy its claims on problem loans to ailing department store operator Sogo Co.
“There are no political decisions involved. I have heard that discussions are being held on various measures in view of the social impact” of the measures, the top government spokesman said at a regular news conference.
Shinsei Bank on Wednesday formally asked the DIC to buy its claims on 200 billion yen in outstanding problem loans to Sogo. The DIC could then forgive part of them.
Sogo has asked Shinsei Bank and other creditor banks to forgive a total of 631.9 billion yen in debt under a sweeping restructuring plan.
But negotiations have been stalled mainly due to opposition from Shinsei Bank, formerly the Long-Term Credit Bank of Japan, which was sold in March to Ripplewood Holdings LLC of the United States.
When the government sold the LTCB to the U.S. investor group, it agreed to buy back any loan assets that have fallen in market value by more than 20 percent over the next three years — on condition the reborn bank had not forgiven part of the loans in question.
Hankyu to aid Dai-Ichi
OSAKA — Osaka-based railway operator Hankyu Corp. is ready to put between 2 billion yen and 3 billion yen into failed Dai-Ichi Hotel Ltd. if it is chosen as the firm’s sponsor, a senior Hankyu official said Thursday.
Speaking at Hankyu’s general shareholders’ meeting, Hankyu Director Michio Yasuda said the company is also willing to provide Dai-Ichi Hotel with between 400 million yen and 500 million yen in operating capital.
Dai-Ichi Hotel last month filed with the Tokyo District Court for protection from creditors under the Corporate Rehabilitation Law with liabilities of 115.2 billion yen.
Hankyu, Dai-Ichi Hotel’s second-largest shareholder following Shinsei Bank, formerly the Long-Term Credit Bank of Japan, is one of the companies that has offered to help Dai-Ichi Hotel Ltd. rebuild itself.
Other firms making offers include U.S. investment company Ripplewood Holdings LLC, which acquired the management rights of Shinsei Bank in March.