The Tokyo High Court in a retrial on Aug. 30 acquitted three former executives of the defunct Nippon Credit Bank of undervaluing bad loans and submitting false financial statements for fiscal 1997. The ruling followed a similar ruling in July by the Supreme Court, which acquitted three former executive of the defunct Long-Term Credit Bank of Japan.
The focus of the trial was whether it was legal to use the Finance Ministry’s old guidelines for assessing nonperforming loans. In 1997 the ministry issued new, stricter guidelines. Fiscal 1997, which started in April 1997, was a transitional year for the government’s financial industry policies.
The three were arrested in July 1999 by the Tokyo District Public Prosecutors Office’s special investigation squad. In the original trial, they were found guilty of failing to follow the new guidelines and of concealing ¥159.2 billion in bad loans and given suspended sentences.
But in 2009, the Supreme Court ordered the Tokyo High Court to retry the case. It said that the new guidelines contained room for “interpretation” and that using the old guidelines was acceptable.
In fact, many banks were using the old guidelines, under which there was no need to treat problem loans as a loss if their borrowers had rational reconstruction plans or had prospects of receiving additional financial support.
In the retrial, the prosecution said that the borrowers in question had no prospect of reconstruction even if they received financial assistance.
The Aug. 30 ruling said that the possibility of getting back even part of the loans, rather than the possibility of reconstruction, should be the basis for judging whether the borrowers deserve bank assistance and that various viewpoints should be allowed in business decisions. Thus it acquitted the former executives.
Apparently people’s anger over injection of trillions of yen in tax money into banks suffering from bad loans prompted the prosecution to arrest the bank executives.
The possibility cannot be ruled out that it followed a premeditated scenario to indict the bank executives.
It also must be remembered that bank executives truly responsible for making problem loans during the bubble years were not indicted because the statute of limitations ran out.
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