FRC declares Kansai Kogin, Tokyo Shogin insolvent

The administrators are expected to examine the assets of the two credit unions, which mainly serve South Korean residents in Japan, and to ask other financial institutions to take them over. They will also investigate management responsibility in their failure.

The two will be allowed to continue operations under the administrators with their deposits fully protected, but will likely see many of their customers queuing up on Monday at their counters to withdraw deposits.

The Bank of Japan (BOJ), the nation's central bank, on Saturday evening called an extraordinary meeting of its Policy Board and authorised special bridge loans to the credit unions to prepare for deposit withdrawals, after a request from the FRC and the ministry of finance.

BOJ governor Masaru Hayami said in a statement released Saturday evening that the BOJ "has decided at today's Policy Board meeting to provide necessary funds" to the two unions "for the continuation of business" while they are under the control of administrators.

The government's Deposit Insurance Corp. will provide financial assistance to those institutions that take over the two credit unions, according to the BOJ.

The BOJ "considers that protection of depositors and others and stability of the financial system will thus be ensured," the governor said.

The FRC has also decided to send in administrators to the seven credit unions principally serving North Korean residents in Japan that collapsed in May last year.

While credit unions are relatively small financial institutions in Japan, the insolvency proceedings of all these unions serving Korean customers could cost a total of 1 trillion yen in taxpayers' money, a financial industry source said.

Based on the credit unions' financial results for fiscal 1998, which ended in March 1999, financial authorities told Osaka-based Kansai Kogin and Tokyo-based Tokyo Shogin in September that their liabilities exceeded assets and that they would not be able to repay deposits.

In the face of an increasing number of collapses, South Korean-linked credit unions are said to be planning to merge sometime in the first half of next year and upgrade themselves into a commercial bank. The deposits and viable loans of Kansai Kogin and Tokyo Shogin could be taken over by the planned bank, the financial industry sources said.

But Osaka-based Kansai Kogin strongly protested the FRC's decision, suggesting it would file a lawsuit seeking its cancellation.

As for North Korean resident-linked institutions, the FRC will be sending administrators to Chogin credit unions in Aomori, Miyagi, Hiroshima, Shimane, Yamaguchi, Fukuoka and Nagasaki prefectures.

Last year alone, these seven as well as six other credit unions run for North Koreans went bust. Other credit unions have already been picked to take over them and some taxpayers' money is expected to be injected into them.

But the government has come under fire during parliamentary debate for pouring money into these institutions without clarifying management responsibility. The FRC has thus decided to first send in administrators to the seven credit unions.