Howa Bank, a second-tier regional bank based in Oita Prefecture, said Friday it is considering applying to the Financial Services Agency for an injection of public funds to strengthen its depleted capital.
The amount to be asked for is expected to be about 10 billion yen, industry sources said.
Howa also said it has asked the regional Nishi-Nippon City Bank, based in Fukuoka Prefecture, to accept some 3 billion yen in new shares.
Nishi-Nippon is expected to accept the call, the sources said. Howa is hoping to start talks with Nishi-Nippon in the future to integrate their management, they added. The integration would create a regional bank with about 6.2 trillion yen in deposits.
Financial Services Minister Kaoru Yosano indicated Friday the FSA will consider a public fund application from Howa favorably.
"The bank should consider the strengthening of its capital in some form," Yosano told reporters.
Howa would be the first bank to apply for the injection of public funds under a law that took effect in August 2004. The law is aimed at supporting regional financial institutions with public funds.
If the application is accepted, Howa would become the first bank to take public funds since the full introduction of the payoff-limited deposit protection system in April 2005.
In April 2005, the government imposed a refund cap of 10 million yen on the principal and interest earned on nearly all deposits in the event a financial institution fails.
Due to the disposal of bad loans, Howa's capital adequacy ratio is believed to have fallen below 4 percent at the end of March from 8.56 percent at the end of September.
Domestic banks are required to have a capital ratio of at least 4 percent.