The state-backed Deposit Insurance Corp. of Japan said Sunday that around ¥11 billion, or about 1.9 percent, of deposits at the failed Incubator Bank of Japan will not be covered by the nation’s deposit protection scheme, meaning that the amount may not be fully refunded.
The amount belongs to 3,423, or about 2.7 percent, of depositors with the lender for small businesses, which filed Friday for bankruptcy protection, triggering the deposit protection limit for the first time.
Set up in 2004 with a unique business model of accepting only time deposits, the bank attracted depositors because it offered relatively high interest rates and was covered by the system for failed banks under which ¥10 million in principal plus interest earned are guaranteed per depositor.
According to the DIC, which made the announcement after completing the process of checking the total amounts belonging to individual depositors in multiple accounts, the bank held the deposits of 126,779 people totaling ¥582 billion as of Friday.
With the completion of the process, Incubator Bank will resume operation Monday at some of its outlets, said the DIC, which is serving as the administrator of the bank.
Once the bank resumes operating 16 of its 114 outlets across Japan, the protected deposits of ¥10 million plus interest will be refunded within days of applications being submitted.
Refunds related to unprotected amounts will be decided after the DIC examines the bank’s asset components and there is a high possibility that some portions will not be returned, while refunds are unlikely to be made for at least a year.
The DIC has established a ¥600 billion credit line for Incubator Bank to ensure necessary refunds.
At a press conference, DIC Deputy Governor Masanori Tanabe urged calm, warning, “There’ll be cases in which the interest earned ends up lower if depositors hurriedly cancel (their time deposits) before maturity.”
The bank is expected to hold a meeting to explain the situation to creditors later this week.
Incubator Bank was set up in 2004 by former chairman Takeshi Kimura, a key adviser to financial services minister Heizo Takenaka in the government of then Prime Minister Junichiro Koizumi, as a specialized lender for small businesses.
The bank later saw its bad loans swell after reviewing its assessment of assets such as loans receivable, which it bought aggressively from a major commercial moneylender. Its debts exceeded assets by ¥180.4 billion as of Aug. 31, prompting the bank to file for bankruptcy protection.
Kimura was arrested in July along with the bank’s then President Tatsuya Nishino and the two were indicted last month on a charge of obstructing an inspection by financial regulators in violation of the banking law.
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