Prime Minister Yoshiro Mori told the Diet on Wednesday that the government's decision not to renegotiate the contract for selling Nippon Credit Bank to a consortium led by Softbank Corp. "is the position of the government."

Mori was responding to a question on how his administration would respond if more troubled companies ask for loan forgiveness from NCB or other insolvent banks the government has nationalized.

Major department store operator Sogo Co. recently asked the government to forgive about half of its 200 billion yen loan from nationalized Shinsei Bank, setting off a political brouhaha over a loan buyback clause put in the contracts to sell NCB and Shinsei's predecessor, the Long-Term Credit Bank of Japan, to private firms.

The request was scrapped under political pressure, and Sogo filed for corporate rehabilitation procedures immediately after.

Mori told the House of Representatives Budget Committee that the government will respond cautiously to possible requests by large corporate borrowers to forgive their debts to nationalized banks.

"The government should not easily grant requests to forgive loans, in the process of dealing with insolvent banks for which public funds have been used," Mori said.

Hideyuki Aizawa, chief of the Financial Reconstruction Commission, which rejected Sogo's loan-forgiveness request, told the committee that "Should the government cancel the contract, it would lead to undermining (international) confidence in the Japanese financial system."

Shinsei Bank took over the problem loans and deposit liabilities of LTCB on March 1, when LTCB was officially sold to an international consortium led by U.S. investment fund Ripplewood Holdings LLC.

Later, Shinsei Bank forced the government to buy the 200 billion yen loans to Sogo, on the strength of a clause in the purchase contract that obliges the government to buy back any outstanding loan whose value plunges by over 20 percent in the three years from the time of the sale.

The Democratic Party of Japan, the main opposition party, is now urging the government to renegotiate the contract to sell NCB or find another buyer.

Using the financial-system revival law, the government nationalized LTCB and NCB, which were faced with insolvency under the weight of massive bad loans, in late 1998.

At the heart of the parliamentary row is the loan buyback clause in the contracts on their sale.

Although the commission approved the NCB contract June 30, the DPJ has been demanding the government remove the clause, arguing it further increases the burden on taxpayers.

The government has said it would be difficult to find an NCB purchaser other than the Softbank-led consortium, which also includes leading leasing company Orix Corp. and Japan's largest nonlife insurer, Tokio Marine & Fire Insurance Co.

Amid public and political criticism, the FRC said last Wednesday it would delay the sale of NCB -- originally scheduled for Tuesday -- by about one month to seek greater public understanding of the necessity of the clause.

In a related development, Shinsei Bank announced Wednesday it will take back the 2.1 billion yen in consulting fees it paid to two U.S. companies in which two of Shinsei's foreign board members have voting rights.

The investor group, which put up part of the capital in Shinsei, will pay in place of Shinsei, the bank said.

However, the bank will not take back the 2.7 billion yen in consulting fees it paid to Amsterdam-based investment group New LTCB Partners CV.