The government plans to dispose of about 97 billion yen in unrecoverable home loans by asking private banks that guaranteed them to assume payment, a senior government official said Monday.

The loans were extended by the Government Pension Investment Fund.

In exchange, the government will offer the banks about 50 percent of the 2.1 trillion yen in performing loans extended to 19 public entities, a senior official at the Ministry of Health, Labor and Welfare said.

The banks can expect about 3 percent interest on the loans, the official said.

The ministry presented the proposal to major commercial banks by Monday and will notify other financial institutions by the end of the month in order to begin negotiations as soon as possible, the official added.

The Government Pension Investment Fund is a public corporation that extends loans using premiums from public pension programs.

The loans are provided through 51 public entities, such as prefectural pension welfare groups.

When loans are approved, financial institutions guarantee them for the fund. If they turn sour, loan-guarantee companies assume payment on behalf of the borrowers.

Since the latter half of the 1990s, a number of loans at the fund turned sour as an increasing number of borrowers lost their jobs or filed for bankruptcy.

Also, loan-guarantee companies behind 19 of the 51 public entities collapsed in the fall of 2000, leaving the fund with 97 billion yen in bad loans as of September.

The ministry devised the bad-loan disposal plan to avoid negative effects on national pension programs.