Sumitomo Trust & Banking Co. should accept all loans extended by the Long-Term Credit Bank of Japan when it merges with the ailing LTCB, according to the head of Japan's most influential business organization.

Although details of the planned merger have yet to be worked out, Takashi Imai, chairman of the Japan Federation of Economic Organizations (Keidanren), said that reportedly the LTCB's liabilities do not exceed its assets and therefore any merger is likely to go ahead in typical fashion.

"As long as it is an ordinary merger, all the loans and assets should be transferred to Sumitomo Trust," Imai told reporters Monday at the Foreign Correspondents' Club of Japan. "I think it would be unreasonable for Sumitomo Trust to take over only the LTCB's first-category loans, (which have been extended to sound borrowers)."

At a news conference last week, Sumitomo Trust President Atsushi Takahashi indicated that the bank will not accept LTCB's unhealthy loans, and expressed hope that the government will be capable of handling the problem loans.

Stressing that the major cause of the current economic malaise in Japan is a financial system saddled with mounting and enormous nonperforming loans, Imai said Keidanren strongly supports the government's idea of a "bridge bank" to help separate the healthy financial institutions from the ailing.

"The government should promptly establish the bridge bank to protect sound borrowers by fully utilizing the public funds worth 30 trillion yen," Imai said, referring to money the government earmarked in February to be pumped into Japan's ailing banks in hopes they would extend loans more freely.