The South Korean government plans to provide up to 33.6 billion yen to help troubled "shogin" credit unions serving Korean residents in Japan merge into a new bank, a Finance Ministry official said Friday.
It will be the first time a foreign government comes to the rescue of financial institutions in Japan.
In Tokyo, Financial Services Minister Hakuo Yanagisawa told a news conference Friday that he was aware of the plan.
Last month, 19 shogin agreed to merge to form a commercial bank around July. The Association of Korean Credit Cooperatives (Kanshinkyo), an umbrella group of the 19, is currently working on the merger plan.
The 19 credit unions hope the planned bank will buy the assets and liabilities of the failed credit unions, which includes the relatively large Osaka-based Kansai Kogin and Tokyo Shogin credit cooperatives.
As the merged bank would probably not be strong enough to takeover the two credit unions, Kanshinkyo officials said they may ask the Seoul to inject funds into the planned bank.
The South Korean government is likely to tap funds it has deposited at the credit unions to help bolster the new bank's capital base, industry officials in Japan said.
In return for the money, Seoul will demand the new bank raise the initial capital, obtain a bank license from Japanese authorities and clean up bad debts, they said.
At a meeting in Tokyo, representatives from the South Korean Embassy in Japan conveyed their government's intention to Kanshinkyo, the Korean Residents Union in Japan and the South Korean Chamber of Commerce in Japan, the officials said.
Kansai Kogin and Tokyo Shogin were declared insolvent Dec. 17 by the Financial Reconstruction Commission, which sent administrators to the two credit unions, believing they were severely undercapitalized following massive loan losses.