In a landmark suit involving a bank's responsibility for bad loans, Sumitomo Bank earlier this week agreed to pay 3 billion yen to the Housing Loan Administration Corp., the public debt-clearing body for bankrupt home-loan companies. The HLAC had initially demanded 5 billion yen in damages, saying the bank brokered loans to the nonbank lenders even though it knew the loans could not be collected.
Sumitomo Bank has refused to pay damages, but it has effectively acknowledged its legal responsibility for the brokered loans. Thus the court-arranged settlement represents a victory for the corporation, even though it does not carry the same weight as a ruling. The settlement is bound to affect the corporation's dealings with other banks that it says "introduced" similar borrowers to the "jusen" lenders.
Clarification of banks' responsibility for such home loans -- which went sour after the end of the real-estate boom -- was a key condition attached to the 680 billion yen public bailout of the failed home lenders. Now that one bank has admitted its responsibility in court, the process of collecting bad jusen loans is likely to pick up momentum. The HLAC, created in 1996, took over 1.6 trillion yen in performing loans and 1.47 billion yen in nonperforming loans.