The Tokyo District Court on Thursday ordered a former vice president of the failed Long-Term Credit Bank of Japan to pay 100 million yen in compensation to the Resolution and Collection Corp. for approving irrecoverable loans to a resort developer in 1992.
Presiding Judge Atsuo Nagano told Keiji Omi to compensate the government-run bad-loan collector for his negligence, saying he “failed to analyze the necessary information and extended additional loans to a project when the loans hardly seemed recoverable.”
He added, “Bank executives are obliged to be calm and have the courage to withdraw from projects that appear unprofitable, while they are also required to be brave enough to embrace risks in seeking opportunities.”
Omi extended 7.5 billion yen in additional loans to a company engaged in resort development on Hatsushima Island off Shizuoka Prefecture’s Izu Peninsula between July and September 1992.
He failed to fully consider the shaky prospects of debt-repayment despite the collapse of the bubble economy, the court said.
He was a senior managing director at LTCB, the predecessor of Shinsei Bank, at the time and the loans later became unrecoverable.
RCC has filed four damages suits against the former management team of the LTCB, seeking 6.3 billion yen in compensation. Omi’s case is the first to receive a ruling.
An RCC official said the ruling is “the first judicial judgment on major bank executives’ duties and management decisions” in Japan and expects it will influence the management of banks.
LTCB, which at the time was one of Japan’s three long-term credit banks, was placed under government control in October 1998, when it collapsed under the weight of bad-loan losses.
It was taken over by a consortium of U.S. and European financial institutions in March 2000 after all its shares were sold to the group. The bank was renamed Shinsei Bank in June that year.
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