Shinginko Tokyo bailed out with ¥40bn

by Richard Kilner

Story link: Shinginko Tokyo bailed out with ¥40bn

Last week ¥40bn was pledged by the Tokyo Metropolitan Assembly to the Shinginko Tokyo, which is currently running at a loss.

The Shinginko Tokyo was set up almost three years ago, in April 2005, with ¥100bn of local government investment behind it.

It was the first bank to be established by local government, and was launched by Governor Shintaro Ishihara in a bid to help smaller and middle sized businesses to cope with financial difficulties.

Uniquely amongst banks, it offered ¥50m without guarantors or collateral, over a maximum timescale of five years.

However, the bank was plunged into problems due to an inability to properly analyse and accurately assess the credit risk of the firms it lent to.

Today, it has run up losses amounting to ¥101.6bn.

The Assembly was split as to whether throwing money at the firm was a good idea, with the Democratic Party of Japan and the Japan Communist Party opposing the decision and Liberal Democratic Party and Komeito supporting it.

The governor has stated that liquidation, the preferred measure of those opposing the fresh investment, would lead to another ¥100bn bill to the taxpayer.

According to the new plan, the bank must be in the black by 2011’s financial year, with profits of not less than ¥800m.

However, the prospects of success seem dubious at best.