OSAKA -- The Osaka District Court found two former executives of the now-defunct Fukutoku Bank not guilty Wednesday of aggravated breach of trust in connection with some 8.2 billion yen in loans illegally extended in a bid to realize the smooth merger between the bank and another financial institution.

According to prosecutors, former Fukutoku President Koji Oike, 60, and former Managing Director Mutsuo Higashi, 60, aimed to reduce the amount of Fukutoku's bad loans by extending fresh loans to ailing borrowers prior to its planned merger with Naniwa Bank in a scheme mapped out by the Finance Ministry to resurrect the two banks.

Presiding Judge Nobuyuki Yokota ruled that although the process in which the loans were extended was not socially appropriate, they were extended with the aim of helping the bank and did not constitute aggravated breach of trust because the acts were committed to meet the ministry's merger plan.

The two authorized roughly 8.2 billion yen in loans to three firms, including a Kyoto-based real estate management company, without securing sufficient collateral, they said.

The court said the two were hasty in extending the loans, noting the pair were aware of the risks and violated their responsibility as executives and caused damage to the bank as a result.

Some observers said Wednesday's ruling suggested the two could be held responsible in an ongoing civil suit.

The two banks merged in October 1998 with the injection of about 300 billion yen in public money.

Yet, the new bank collapsed in August the following year and its operations were transferred to the Daiwa Bank group in February.