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Monday, December 14, 1998 Published at 08:38 GMT

Business: The Economy

Nippon Credit Bank loses control

NCB President Shigeoki Togo: Bank is not insolvent

Japanese Prime Minister Keizo Obuchi has refused any stay of execution for the ailing Nippon Credit Bank - one of the world's leading banks - and put it under state control.

BBC Correspondent Peter Coe: The Nippon insisted that it had never been insolvent, but the government disagreed
The move on Sunday came as bad debts rose towards $27bn.

The government acted in an effort to put the brakes on the banking crisis which has rocked the world's second largest economy over the past months.

[ image: NCB is crippled by bad loans]
NCB is crippled by bad loans
Officials said the bank had failed to come up with a satisfactory recovery plan to pay off debts from bad loans.

These are expected to reach ¥3.2 trillion ($27 bn) by March, about one-third of its total lending.

NCB was among the world's top 50 banks in 1997, according to Fortune magazine, with assets totaling ¥12.3 trillion ($106bn).

The government is now in control of all the bank's stock - only the second time Tokyo has nationalised a major bank.

BBC correspondent Juliet Hindell reports from Tokyo on the crisis
Executives at Nippon Credit, set up in 1957 to finance Japan's post-war industrial revival, lodged a last-minute written appeal insisting the bank had never been insolvent.

The bank's president Shigeoki Togo said: "We feel this government decision is extremely regrettable. The government's decision is extremely abrupt."

Presidential resignation

Mr Togo said he would resign but insisted his bank was not insolvent and should not have been nationalised. He conceded however that bad loans were hard to write off in the face of the country's worst postwar recession.

Analysts believe the bank wrongly assessed its loan portfolio, refusing to acknowledge that some loans had turned bad.

For the past few years Nippon Credit has attempted drastic restructuring and sought support from healthier partners.

But last week a planned merger with another bank, Chuo Trust and Banking Co. Ltd, fell through leaving Nippon Credit more exposed.

The bank also refused to ask for an injection of public funds from the government, even though nearly every other major bank has said it will apply for the funds.

The bank's nationalisation means that all depositors will be protected and all transactions guaranteed. Money would be provided to keep the bank's operations continuing under government control.

Mr Obuchi's government will try to sell off the bank's bad loans, find a private buyer to take over the healthy assets, and decide the price to be paid for the bank's shares.

Under bank reforms enacted in October Tokyo has access to an ¥18-trillion pool of public money to deal with nationalised banks.

Bubble economy

Many top banks have been brought to the brink of collapse by their bad loans, which have snowballed since the collapse of the bubble economy in the early 1990s.

Nippon Credit's rival, Long-Term Credit Bank of Japan, was put under state control in October, again brought down by its heavy bad loans.

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