Nineteen credit cooperatives run by ethnic South Koreans in Japan signed a basic agreement on Monday to merge toward the formation of a bank that would begin operating in July.

The signing comes on the heels of the bankruptcy of two of the largest Korean credit cooperatives, Osaka-based Kansai Kogin and Tokyo Shogin, earlier this month.

Kansai Kogin collapsed with liabilities of 51 billion yen as of June 30, while Tokyo Shogin applied for court protection from creditors with 19.3 billion yen in liabilities.

This negative net worth, which eventually will be covered with public funds, is likely to expand as asset values decrease with the passage of time.

"The situation is dire," said Kim Jae Sook, president of the Korean Residents Union in Japan. "We need to have the 20 (remaining) ethnic cooperatives work toward sound management."

The 19 participants in the merger are required to demonstrate a capital adequacy ratio of at least 4 percent, or submit a plan to achieve the target by March.

Kumamoto Shogin was the only Korean cooperative that did not sign Monday's agreement. Officials said no reason was given.

Despite assertions that the capital adequacy ratio can be achieved through "self effort," officials admitted individual co-ops hoped to apply for an injection of public funds before the new bank comes together.

The new bank will be formed on the understanding that it will sponsor the rehabilitation of the two failed credit unions, officials said. But it will not be ready in time to sponsor Osaka Shogin, which was declared bankrupt in June last year, and whose deadline for the transfer of operations is set for June.

The 19 co-ops together have a total of 578.7 billion yen in deposits from 67,575 members.