Japan Post Bank is negotiating a deal to extend a subordinated loan worth ¥50 billion to Dai-ichi Mutual Life Insurance Co. to help its recapitalization, sources said.
It would be the first time Japan Post Bank, which mainly invests in government bonds under a conservative strategy, has offered such large aid to another financial institution.
The move suggests the postal bank, created in October 2007 with the start of the 10-year privatization process for the postal system, is now ready to diversify its investments, the sources said.
Domestic financial institutions have been mutually cooperating on recapitalizations amid the global financial crisis. Holding financial assets of around ¥200 trillion, Japan Post Bank could now join such moves as a fresh investor, they added.
Before the privatization process, the postal bank was restricted from certain investment activities, including direct stock trading. Since the restriction was lifted in December 2007, the bank has been readying itself for more aggressive investment strategies.
The bank apparently has decided it is safe to invest in an insurer with a relatively low credit risk, the sources said.
Dai-ichi Mutual Life plans to raise around ¥180 billion via subordinated loans that can be counted as capital and is expected to announce the plan by the end of this month.
The insurer's solvency margin ratio — the key gauge for measuring ability to pay insurance claims — was on the decline last year but stood at 756 percent at the end of December, far above the 200 percent threshold required.
But Dai-ichi Mutual wants to recapitalize itself in a pre-emptive manner amid the continued financial turmoil as well as to ready itself for fresh investments, including acquiring an overseas insurer, the sources added.